By Rod Nickel and Shanti S Nair
May 29 (Reuters) - Oil and gas producer Canadian Natural Resources Ltd CNQ.TO said on Wednesday it would buy the Canadian assets of U.S.-based Devon Energy Corp (NYSE:DVN) DVN.N for C$3.8 billion ($2.81 billion) in cash, investing further in Canada's struggling energy sector as some rivals divest.
Shares of Canadian Natural rose the most in nearly two months as investors who have been otherwise skeptical of Canada's oil sector saw a good fit.
International companies like Royal Dutch Shell (LON:RDSa) RDSa.AS and ConocoPhillips (NYSE:COP) COP.N have shed assets in Canada for several years as limited pipeline space has curtailed prices and growth prospects. Rival Canadian producer Suncor Energy SU.TO has said it would not make further major investments in Canada until the transportation crunch was resolved.
But Canadian Natural said Devon's Alberta assets were too good to pass up, since they are adjacent to its own operations and would save C$135 million in costs over the next year.
"It is the textbook definition of an excellent fit," Canadian Natural Executive Vice Chairman Steve Laut said on a conference call.
The assets provide economies of scale and allow Canadian Natural to boost production even as Alberta has imposed mandatory oil curtailments this year due to pipeline constraints, Laut said.
Investors agreed, pushing Canadian Natural's stock up 3.5% in Toronto to C$36.70, while Devon's stock slipped 0.5% in New York as global oil prices dipped.
Canadian Natural has "the luxury of taking a longer term view. And these are very opportunistic purchases," said Stephen Kallir, senior analyst at consultancy Wood Mackenzie, noting the company's 2017 acquisitions from Shell and Cenovus Energy CVE.TO .
The warm investor reaction to Canadian Natural's acquisition is contrary to the selloffs last year that greeted big buys by some Canadian energy producers, like Encana Corp ECA.TO . This has prompted other producers to cautiously deploy free cash to pay down debt or reward shareholders. Natural, the biggest Canadian oil and gas producer by volume, becomes the world's eighth-largest producer with the deal, not counting state-owned companies, Kallir said.
Some investors may question how Canadian Natural will transport the additional oil production, given pipeline bottlenecks, Tudor Pickering Holt & Co said in a note.
Canadian Natural President Tim McKay said on the conference call the company was trying to increase its crude volumes by rail.
Devon's Canadian portfolio consists of heavy oil assets, mainly in Alberta. Its daily net average production was 113,000 oil-equivalent barrels in the first quarter.
Devon said it was selling the assets to focus purely on U.S. production. U.S. oil companies have been investing in onshore shale production at home amid a surge in output.
Selling Canadian assets "is an important step in executing Devon's transformation to a U.S. oil growth business," Chief Executive Officer Dave Hager said in a statement.
The deal is expected to close by June 27 and will be fully financed by a new C$3.25 billion committed loan, Canadian Natural said.
J.P. Morgan Securities LLC and Goldman Sachs (NYSE:GS) served as Devon's financial adviser. TD Securities was financial adviser to Canadian Natural.
Oklahoma-based Devon has also been looking to sell its gas-rich Barnett shale patch in north Texas as natural gas prices hover at historical lows. It expects to sell the asset by the end of 2019. ($1 = 1.3506 Canadian dollars)