Canadian Natural Resources Ltd (CNQ.TO) has discussed spinning off royalty assets with some pension plans and strategic buyers, according to three sources familiar with the situation.
The company, which had said in May it intended to sell the assets this year, has engaged with the Canada Pension Plan Investment Board, Ontario Teachers’ Pension Plan and PrairieSky Royalty Ltd (PSK.TO), said the sources, who spoke on condition of anonymity as the talks are not public.
The move comes about four months after Cenovus Energy Inc (CVE.TO) agreed to sell its royalty lands to Ontario Teachers’ for $3.3 billion and more than a year after Canada’s largest natural gas producer Encana Corp (ECA.TO) spun off its royalty assets though PrairieSky.
PrairieSky and Teachers were not immediately reachable for comment. Canadian Natural and CPPIB declined to comment.
Shares in Canadian Natural closed up less than 1 percent at $23.17 on Friday.
Analysts estimate the value of the assets range from $1 billion to $2.5 billion.
Canadian Natural, the country’s second-largest oil and gas producer, is keen on ensuring that it gets cash, and not equity, the sources said.
“The good thing is that they’re not motivated sellers like some others. Unlike other sellers they are in a strong position, and can wait for the right window, or price,” said one source, adding that it is going to be “very difficult” for Canadian Natural to get the valuation that Cenovus got on their lands.
Given the volatility in the price of oil, the company is keeping all options open and has not made a decision to sell the assets right away, the sources said, adding it could hold off until prices improve.
Since the selloff in oil began a year ago, merger and acquisition activity has waned in the energy patch.
An initial public offering, which was the avenue that both Cenovus and Canadian Natural were considering after PrairieSky’s IPO, is certainly off the table, the sources said.
One factor favoring a sale would be to use the proceeds to fund opportunistic acquisitions in this low-price environment, said the sources.
Both Ontario Teachers’ and CPPIB, two of the country’s top pension fund managers, have expressed interest in expanding their energy investments to take advantage of lower valuations.
(Reporting by John Tilak and Euan Rocha; Additional Reporting by Nia Williams in Calgary; Editing by Alan Crosby and Lisa Shumaker)
Photo courtesy of Reuters/Dan Riedlhuber