XOM Exxon Mobil Corp

By Ian Walker and Michael Amon 

LONDON-- Royal Dutch Shell PLC is selling nearly all of its Canadian oil-sands developments in deals worth $7.25 billion, largely abandoning a region that has come to symbolize the risks for big energy companies in high-cost, carbon-intensive sources of oil.

Shell is pulling out of the Canadian oil sands after its biggest rival, Exxon Mobil Corp., signaled that production was unprofitable in the region at today's prices. Exxon removed about 3.3 billion barrels of oil from its stated reserves mostly as a result of the oil sands. Norway's state-owned Statoil ASA pulled out of its oil-sands projects late last year.

Oil-company executives have worried about whether oil-sands projects will become an albatross. Production in some areas is so expensive that it can't be justified without oil prices much higher than the $50 to $55 a barrel that crude futures have traded at in recent weeks.

Big oil companies piled into Canada's oil sands, based in northern Alberta, beginning over a decade ago when prices were soaring over $100 a barrel. But the oil-price crash that began in 2014 made many projects untenable. There are also high upfront investment costs, tough new regulations on carbon emissions and limited pipeline access to markets.

In the deals announced Thursday, Shell is selling a host of oil-sands developments to Canadian Natural Resources Ltd., a Calgary company with significant oil-sands interests. The deal includes Shell's Carmon Creek, a project it abandoned in 2015 with a write-down of about $2 billion as oil prices crashed.

Shell is retaining a 10% interest in one oil-sands project known as Athabasca, in a new joint venture with Canadian Natural.

Shell is selling its 60% stake in a project known as Athabasca, to Canadian Natural. The two companies are then forming a partnership to buy Marathon's 20% stake in Athabasca, allowing Shell to keep a small piece of its oil-sands production. Shell is also maintaining some processing facilities in Alberta.

The deals represent a pivot away from Canada for Shell. Executives have said the company's future now lies in liquefied natural gas and deep water oil projects. Shell's's roughly $50 billion acquisition of BG Group PLC last year cemented that strategy.

Shell Chief Executive Ben van Beurden called Thursday's deal "a significant step in re-shaping Shell's portfolio in line with our long-term strategy."

Shell and other oil companies have been under pressure from environmentalists to abandon the Canadian oil sands. Extracting and refining the region's heavy oil or bitumen is more carbon-intensive than most other forms of oil development. The Alberta and Canadian governments have introduced new rules, including a cap on emissions and a carbon tax.

The sale should help Shell's progress in its plan to sell $30 billion in assets to pay down a huge debt pile accrued to buy BG. RBC Capital Markets said Thursday that Shell is now about two-thirds of the way to that debt-reduction goal, which helps remove concerns about Shell's ability to pay its dividend.

Write to Ian Walker at ian.walker@wsj.com and Michael Amon at michael.amon@wsj.com

(END) Dow Jones Newswires

March 09, 2017 06:26 ET (11:26 GMT)

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