How TD helped Canadian Natural pull off blockbuster purchase of Shell oilsands' assets<\/a><\/li>\n<\/ul>\nShell had acquired the shares as part of a $12.7-billion deal to sell its oilsands portfolio to Canadian Natural in 2016, at the height of the oil price downturn. The deal propelled Canadian Natural ahead of rivals and transformed it into the largest upstream oil and gas producer in Canada, with total production exceeding 1 million barrels of oil equivalent per day.<\/p>\n
Given that the discount was relatively small, Eric Nuttall, partner and senior portfolio manager at Ninepoint Partners, said he didn\u2019t expect the nearly 100 million shares to flood the open market.<\/p>\n
\u201cIf it was a 10 per cent discount, you\u2019re going to have people looking to flip it for 5 per cent (upside),\u201d Nuttall said, but a 3 per cent discount suggests “you\u2019re looking at longer-term investors rather than short-term hedges.\u201d<\/p>\n
Since the deal was widely expected, larger investors had previously made large expressions of interest, so investor are unlikely to flip the stock, Nuttall added.<\/p>\n
Similarly, Canoe Financial director and senior portfolio manager Rafi Tahmazian said bought deals like the one announced Tuesday are better than marketed deals as it reduces volatility.<\/p>\n
\u201cWe think the sale comes while energy is still in the early stages of the lifecycle, so it’s good timing for investors with a longer term outlook,\u201d he said.<\/p>\n
Other analysts were also positive on Canadian Natural and many encouraged investors to buy.<\/p>\n
GMP FirstEnergy analyst Michael Dunn said the deal was \u201cnegative today; positive going forward.\u201d He has a $57 per share price target on the stock.<\/p>\n
\u201cYou get basically the biggest and the best oil company in Canada,\u201d GMP First Energy analyst Michael Dunn said Tuesday as the stock was tumbling.<\/p>\n
\u201cOf companies of a similar size, they are uniquely positioned to have very low sustaining capital costs for the next 20 years, relative to their cash flow,\u201d Dunn said. \u201cArguably, Imperial Oil is in that category too, but the valuation for CNRL is just more attractive.\u201d<\/p>\n
In a note, Dunn said he expected some portfolio managers to sell their positions in other oil and gas companies and buy Canadian Natural at a discount. As many as 24 analysts have a buy rating on the stock, while the remaining five have a hold rating, Bloomberg data shows.<\/p>\n
For its part, Shell had previously indicated it would eventually sell the shares, and analysts believe the timing of the deal to sell the shares now made sense in the context of rising oil prices.<\/p>\n
\u201cA deal this size, you don\u2019t want to consummate in the summer when investor interest is kind of at its low,\u201d Raymond James analyst Chris Cox said. \u201cThis means that the company, if it was going to sell this year, you either need to sell it now or risk waiting until the second half of the year.”<\/p>\n
Cox, who has a $60 per share price target on Canadian Natural stock, said the resultant drop in the Calgary-based producer\u2019s shares made the stock more attractive.<\/p>\n
It also gives Shell more cash as the company gets closer to making a decision to build a massively expensive LNG project on Canada\u2019s West Coast, he said.<\/p>\n
\u201cI wouldn\u2019t say it\u2019s a table-pounding opportunity but I like (Canadian Natural) more today than I did yesterday,\u201d Cox said, adding the deal is also \u201cindicative of Shell adding a little dry powder for LNG Canada sanctioning later this year.\u201d<\/p>\n
Shell indicated in a release it would use the proceeds to reduce its net debt.<\/p>\n
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