Canadian Natural Resources has entered into an agreement to acquire the Alberta assets of Chevron Canada, an indirect subsidiary of Chevron Corporation, for a total consideration of $6.5 billion. This strategic acquisition represents a pivotal expansion in Canadian Natural’s oil sands and shale portfolio, incorporating Chevron’s 20% stake in the Athabasca Oil Sands Project (AOSP) and a 70% operated interest in the Duvernay shale formation. The transaction is poised to enhance Canadian Natural’s position as a preeminent energy producer, providing substantial growth opportunities in both unconventional oil sands production and shale resource development.

The transaction encompasses Chevron’s interests in the Muskeg River and Jackpine mines, the Scotford Upgrader, and the Quest Carbon Capture and Storage facility. Upon finalization of the acquisition, Canadian Natural Resources will possess a 90% working interest in AOSP, thereby augmenting the company’s Synthetic Crude Oil (SCO) production capacity by an estimated 62,500 barrels per day (bbl/d). This expanded stake will not only bolster production volume but also enhance Canadian Natural’s operational integration across upstream and upgrading processes, fostering greater efficiency and cost competitiveness. In addition, the acquisition includes non-producing oil sands leases spanning 267,000 gross acres, of which 100,000 acres are net to Canadian Natural. These leases offer significant potential for future resource development, which could further increase production volumes and bolster reserves over the long term.

The acquisition also confers upon Canadian Natural Resources a 70% operated interest in the Duvernay shale play, which is expected to contribute an additional 60,000 barrels of oil equivalent per day (BOE/d) by 2025. The Duvernay shale is widely regarded as one of the most promising shale plays in North America, known for its high-quality light oil and natural gas liquids. In 2023, the assets contributed 84,000 BOE/d to Chevron’s overall production, underscoring the high-margin potential of this resource base. The acquisition will significantly enhance Canadian Natural’s exposure to these valuable liquids-rich resources, thus reinforcing the company’s position in the shale sector. Chevron’s divestment of these assets aligns with its broader objective of divesting between $10 billion and $15 billion of non-core assets by 2028 in order to streamline its global portfolio and concentrate on core regions offering the highest potential returns.

Financing and Cash Flow Implications

Canadian Natural Resources will finance this transaction through a $4 billion term loan facility arranged with The Bank of Nova Scotia and Royal Bank of Canada, supplemented by cash reserves and existing credit facilities. As of September 30, 2024, the company reported approximately $6.2 billion in available liquidity, which provides a robust financial foundation to support the acquisition. The financing strategy underscores Canadian Natural’s disciplined approach to maintaining a strong balance sheet while pursuing strategic growth opportunities. By employing a balanced mix of debt financing and internal cash reserves, the company is able to retain financial flexibility to navigate its obligations while continuing to capitalize on favorable market opportunities.

Scott Stauth, President of Canadian Natural Resources, remarked that the acquired assets are highly complementary to the company’s operational competencies and will facilitate further efficiency enhancements in the AOSP. Since the initial acquisition of an AOSP interest in May 2017, Canadian Natural has demonstrated a consistent track record of operational optimization, and the expanded ownership will allow for the application of additional best practices and performance improvements. Stauth emphasized that Canadian Natural’s established operational culture and extensive experience managing these assets will be instrumental in driving long-term value creation for shareholders and advancing the company’s efficiency objectives.

Mark Stainthorpe, Chief Financial Officer of Canadian Natural Resources, highlighted that the acquisition is anticipated to deliver immediate accretive benefits to both cash flow and earnings. The transaction capitalizes on Canadian Natural’s existing operational expertise in the AOSP mines, thereby minimizing potential risks and maximizing synergies. Stainthorpe underscored that the acquisition is particularly advantageous for generating substantial free cash flow, even in scenarios involving a lower commodity price environment. The integration of increased production volumes, operational synergies, and cost efficiencies is expected to substantially enhance the profitability of the acquired assets.

Dividend Increase and Financial Strategy

Reflecting confidence in its strengthened cash flow capabilities, Canadian Natural’s Board of Directors has approved a 7% increase in the quarterly dividend, bringing it to $0.5625 per share, with the first payment scheduled for January 2025. This dividend increase marks the 25th consecutive year of annual increases, with a compound annual growth rate of 21% over the period. This milestone further demonstrates the company’s confidence in the cash-generative potential of its newly acquired assets and its ongoing commitment to providing attractive returns to shareholders.

The company has also articulated a disciplined approach to free cash flow allocation. Under the revised strategy, Canadian Natural will allocate 60% of free cash flow to shareholder returns and the remaining 40% towards debt reduction until net debt reaches $15 billion. Once net debt falls within the $12 billion to $15 billion range, shareholder distributions will be increased to 75% of free cash flow. Should net debt decline below $12 billion, the entirety of free cash flow will be directed towards shareholder distributions. This financial strategy underscores Canadian Natural’s prioritization of a balanced approach to growth, debt reduction, and shareholder returns, reflecting prudent capital management and its commitment to financial stability.

Expanding Production Capabilities

The acquisition is projected to augment Canadian Natural’s production capabilities by an additional 122,500 BOE/d by 2025, while adding approximately 1.4 billion barrels of oil equivalent in total proved plus probable reserves. The company intends to leverage its operational acumen to enhance production from the Duvernay shale play, with a target of increasing production to 70,000 BOE/d by 2027. The Duvernay assets present a significant growth opportunity, and Canadian Natural plans to employ advanced drilling and completion technologies to optimize resource recovery and boost operational efficiency. The integration of these assets into Canadian Natural’s existing operations is anticipated to yield considerable cost savings, thereby optimizing production and further enhancing the overall value of the acquired assets.

Upon closing, which is anticipated in the fourth quarter of 2024, Chevron’s employees currently working on the acquired operations will transition to Canadian Natural Resources. The integration of these experienced personnel will help ensure a seamless transition and maintain continuity in operations. Canadian Natural recognizes the importance of the expertise held by Chevron’s workforce and views their integration as critical to unlocking the full potential of the acquired assets.

This acquisition marks a significant milestone in Canadian Natural Resources’ efforts to fortify its standing as a leading oil sands producer and expand its foothold in the Duvernay shale play. The company’s strategic focus on operational excellence, production optimization, and financial discipline positions it advantageously to harness the benefits of this substantial acquisition and generate long-term shareholder value. With a sound financial strategy, an enhanced dividend policy, and a clear trajectory for production growth, Canadian Natural is poised to capitalize on the opportunities presented by this transaction and solidify its position as a dominant player in the energy sector.

  Athabasca Oil Sands Project, Canadian Natural Resources, Chevron, Chevron Canada, Duvernay shale, Jackpine mines, Mark Stainthorpe, Muskeg River, Quest Carbon Capture and Storage, Royal Bank of Canada, Scotford Upgrader, Scott Stauth, The Bank of Nova Scotia