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Blueprint for oil sands survival
Teck embarks on regulatory process for C$20.6 billion mine, with plans to ship 20 percent of output to US Gulf Coast refineries Gary Park for Petroleum News
Teck Resources, the Vancouver-based mining giant, has suddenly emerged as a power in the Alberta oil sands.
In early September it shared the spotlight at the grand opening of the Fort Hills mine - a 194,000 barrels per day operation owned by a trio made up of Suncor as 54.1 percent operator, France’s Total with a 24.6 percent stake and Teck with a 21.3 percent holding.
Before the month was over, Teck put an end to beliefs that the era of mega oil sands projects is over by launching the first day of regulatory hearings into its application for the Horizon proposal - a massive greenfield project north of Fort Hills that is designed to produce 260,000 bpd.
The announcement coincided with a flurry of upbeat news for a sector that has been pummeled into submission over the last four years, including thousands of layoffs, billions of dollars in spending cutbacks and the withdrawal of several major companies from the oil sands, compounded by a fire that wiped out large chunks of the oil sands operational “capital” of Fort McMurray.
Since May a host of industry analysts say oil prices could top US$100 a barrel this year, compared with less than US$30 in early 2016, while the International Energy Agency fueled talk of a roughly 40 percent spike by projecting that world oil consumption will surpass 100 million barrels per day over the next three months.
“The price range for Brent crude of US$70-$80 in place since April could be tested,” the agency said, referring to U.S. sanctions on Iran’s output, falling Venezuelan production and unplanned outages, although it warned that a possible risk to the forecast lies in some key emerging economies, due to currency depreciations against the U.S. dollar and risks to growth from an escalation of trade disputes.
However, Matt Badiali, a senior research analyst at Banyan Hill, said the current global market is tight, with supply and demand almost in lockstep.
C$20.6 billion price tag Amid this renewed optimism, the Horizon application is now facing a joint review hearing by the Canadian Environmental Assessment Agency and the provincial government’s Alberta Energy Regulator.
Carrying an estimated price tag of C$20.6 billion, Horizon’s price tag slightly exceeds Teck’s own market capitalization of C$18 billion, giving rise to speculation that Teck will need a partner to help finance the massive capital costs, based on the company’s record of seeking partners for its other mining ventures after guiding those proposals through the regulatory process.
For instance, it is currently seeking a partner for the C$4.8 billion second phase of its recently approved Quebrada Bianco copper mine in Chile.
But for now Teck’s focus is on “successfully advancing Frontier through the regulatory review process,” a company spokesman told the Financial Post.
“Any further decision around the project will depend on factors including the outcome of that process, market conditions and other considerations,” including partnership options, said a spokesman.
FID in mid-2019 Given the current regulatory framework, Teck is counting on making a final investment decision by mid-2019, CIBC World Markets analyst Oscar Cabrera said in a research note.
RIBC Capital Markets analyst Stephen Walker said his firm has a “positive impression of the Fort Hills operation and it can become a key cash flow generator within Teck’s portfolio.”
That confidence is bolstered by Teck’s plan to market its own Fort Hills production and the fact that it has secured pipeline capacity to send 20 percent of its volume to refineries on the U.S. Gulf Coast.
On the issue of transportation infrastructure, a Teck spokesman said Frontier would not be dependent “on any particular pipeline.”
Oil sands analyst Kevin Birn said that by the time the Frontier mine achieves its first oil in 2026 Canada should have a new pipeline to deliver crude bitumen to coastal export points.
Before embarking on regulatory hearings Teck has been consulting with indigenous communities in the Frontier area to avoid the pitfalls that have tripped up previous resource undertakings, claiming it has obtained 12 participation deals with Cree, Dene and Metis communities - a record for an oil sands project of Frontier’s size.
Allan Adam, chief of the Athabasca Chipewyan First Nation, said an agreement with Teck “respects our treaty right and uses innovative approaches to mitigate the pacts on our land, waters and wildlife,” describing the fact as a “turning point” for the First Nation’s desire to determine its own future.
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