Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
One of the largest Canadian oil and gas companies has sold its stake in a major pipeline system linking it and other major oil producers in northern Alberta.
Canadian Natural Resources (TSX,NYSE:CNQ) hours ago announced that the company has entered into an agreement with Inter Pipeline (TSX:IPL) to sell its 15% share in the Cold Lake pipeline system for $527.5 million. The acquisition by IPL means that Inter Pipeline will now own 100% of the 1,400-kilometre pipeline, which transports bitumen from a number of oil majors including Imperial Oil, Canadian Natural, Cenovus Energy and ConocoPhillips through the FCCL Partnership. Bitumen is blended with diluent and shipped to crude oil hubs in Edmonton and Hardisty, Alberta.
The agreement will trigger the construction of a new $125 million pipeline connection to the Kirby North production facility, with service targeted for the first quarter of 2020.
The cash and share transaction has Canadian Natural, the country’s largest upstream oil and gas producer, receiving $350 million in cash and $177.5 million through the issuance of 6.417 million Inter Pipeline shares.
Upon closing of the Cold Lake acquisition, Inter Pipeline will enter into an agreement with Canadian Natural to transport diluent and bitumen blend for its Kirby North steam-assisted gravity drainage (SAGD) oil sands project. The agreement will trigger the construction of a new $125 million pipeline connection to the Kirby North production facility, with service targeted for the first quarter of 2020.
“Inter Pipeline’s purchase of the remaining interest in the Cold Lake pipeline system is a highly logical and immediately accretive investment on a funds from operations basis,” Christian Bayle, president and CEO of Inter Pipeline, stated in a press release.
The agreement also increases contracted capacity commitments by approximately 30,000 b/d and 8,000 b/d on Inter Pipeline’s Cold Lake and Polaris pipeline systems, respectively. The Cold Lake pipeline system transported approximately 535,000 b/d of bitumen blend in the third quarter of 2016.
The resumption of Kirby North, announced at the beginning of November, is the first new oilsands facility to move forward since crude oil prices fell below $100 a barrel in mid-2014. Canadian Natural suspended the project at the beginning of 2015 as part of a plan to slash $2.4 billion from its budged amid a worsening oil market. The $1.35 billion thermal in situ facility, located approximately 40 kilometres southwest of Conklin, Alberta, is around half-built.
Under the terms of the agreement, Canadian Natural has contracted for bitumen blend and diluent transportation capacity for the first phase of Kirby North 40,000 barrels per day production on a take-or-pay basis. This contract also integrates existing long-term transportation arrangements for Canadian Natural’s Kirby South oil sands development. Inter Pipeline has provided bitumen blend and diluent transportation service to Canadian Natural’s Kirby South project since August 2013.
