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Alberta oil sands turning gritty BP has no interest in joining upstream; Petro-Canada fails to attract ‘value’ bids for leases; Alberta government land sales returns decline from C$128 million from C$846 million at the same time last year; analysts think mood has turned cautious Gary Park For Petroleum News
BP is sticking to an old refrain — it has no interest in establishing a base in the Alberta oil sands.
Petro-Canada has lent weight to a growing school of thought — the appetite for oil sands assets is subsiding.
And the Alberta government is hurting after only three land auctions this year — returns from the oil sands have plummeted to C$128 million from C$846 million at the same time last year.
Although no one is yet suggesting that it’s time to turn out the lights in northern Alberta, these are a sharp reversal after three years of breakneck developments in the oil sands.
Whether they are merely a slowdown triggered by the sag in oil prices, or the beginning of a more troubling trend is too early to say.
But a feeling does seem to be taking hold that the oil sands fever is subsiding.
One of the last major holdouts from the oil sands, BP remained consistently skeptical about the resource under Chief Executive Officer John Browne.
That arm’s-length position doesn’t seem likely to change Aug. 1, when Tony Hayward replaces Browne.
Just because BP is spending US$3 billion retrofitting its Whiting, Ind., refinery to process Canada’s heavy crude is no reason to expect BP will enter the oil sands upstream, Hayward said.
Like Browne, he rated the company’s other global assets as a better prospect than unconventional projects, saying the oil sands “do not compete” on the same level.
“My priority is simple and clear. ... It is to implement our strategy by focusing like a laser on safe and reliable operations,” Hayward said.
That put an end to a buzz, generated by Morgan Stanley that BP was about to launch a takeover bid for oil sands pioneer Suncor Energy.
Regardless of its refusal to join the upstream, BP is still faced with negotiating supply contracts from the oil sands for the Whiting refinery along the lines of the EnCana-ConocoPhillips production-refining pact last year.
Petro-Canada fails to find buyer Petro-Canada’s failure to line up a buyer for five oil sands leases was widely interpreted as a sign that the buying frenzy of a year ago has cooled.
But there were extenuating circumstances: Petro-Canada owned none of the properties outright and in most cases was only a minority holder, creating problems for any buyer eager to develop the assets.
The leases would also have needed drilling and steam injection to extract the bitumen, a more complex process than mining.
Even so, some analysts had counted on the 1.7 billion barrels of bitumen resources fetching as high as C$1 per barrel, a figure rated as ludicrous by Adam Zive, an analyst at Desjardins Securities, who estimated from the outset that something in the range of C$315 million to C$850 million was more realistic.
Petro-Canada never put a number on the properties, but insisted the auction “attracted considerable attention from North American and international companies.”
Senior oil sands Vice President Neil Carmata insisted that offers for the “high-quality” assets never met the “high value” the company placed on them.
For now, Petro-Canada will consider doing a deal in the future when the “price is right.”
Foreign companies seen as bidders Those hoping for a further barometer on the desire by international companies to enter the oil sands were disappointed.
There had been hopes that Korea National Oil, South Korea’s state-run company, might build on the US$270 million it spent last year to acquire an undeveloped asset, or that Norway’s Norsk Hydro and Statoil (currently immersed in a merger) would seize the chance to place their imprint on the region, or that Japan Canada Oil Sands might be taking on a larger role, or that the Chinese might be happy to add more elements to their current lower-working interests.
The sale also occurred in the thick of a welter of action and speculation relating to the oil sands, with Royal Dutch Shell struggling to gain investor approval to buy the 22 percent of Shell Canada it doesn’t already own and France’s Total rumored to be hunting Nexen.
The message from analysts such as Mark Friesen of FirstEnergy Capital and Andrew Potters with UBS Securities Canada cautioned against placing too much meaning on the Petro-Canada decision, suggesting that buyers are more likely to be exercising caution.
Talisman, Koch also have properties for sale The larger picture may take on added shape when Talisman Energy discloses the results of its own asset auction, which observers have suggested could yield more than C$1 billion from one wholly owned lease (south of Suncor’s Steepbank mine) and one in which it has a 75 percent stake (just north of the Long Lake joint-venture project by Nexen and OPTI Canada).
The company said it, too, has received heavy interest, but the properties are still up for sale.
As well, Koch Exploration Canada has been shopping a “significant portion” of its Athabasca leases for the past seven months.
That offer involves mostly 100 percent working interests in 347,000 net acres with an estimated 47 billion barrels of oil in place, including 23 billion barrels of “high quality” resource.
Otherwise, Alberta’s bi-monthly land sales have pointed to a reluctance by bidders to sustain the premium prices paid a year ago.
Oil sands properties collected C$133.6 million in the year’s first auction, missing forecasts that exceeded C$200 million.
After three auctions, the oil sands tally stands at C$262.7 million, compared with C$846.4 million at the same time last year, but the 2006 figure was skewed when the U.S. subsidiary of Royal Dutch Shell paid C$465 million for largely unexplored and untested territory.
The average per-hectare (2.47 acres) price has spiraled sharply down to C$626 so far this year from C$1,427 after the first three sales last year.
However, Husky Energy said Feb. 6 it may join forces with Shell to research methods of extracting oil from the limestone formations, unlike the sand that holds the bulk of bitumen deposits.
Husky Chief Executive Officer John Lau said different technologies are under consideration for the “very challenging ... carbonate basin area. We are actually trying to work with Shell to look at ways of developing (the deposit).”
Husky believes its limestone holdings may hold more bitumen than the rest of its leases combined, but commercial production is still a distant prospect.
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