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Breakthrough for Asians, aboriginals PetroChina poised to take over oil sands project; First Nation counting on operation jobs, economic benefits; Ivanhoe shelves work Gary Park For Petroleum News
Asian investment and participation by Canadian First Nations in the development of Alberta’s oil sands are bucking the trend of recent years as a new project moves closer to obtaining regulatory approvals.
At a time when the Canadian government has slammed the door on oil sands takeovers by foreign state-owned enterprises, effectively turning the taps off billions of dollars from China in particular, and First Nations are mounting challenges to all major resource plans, a 250,000 barrel per day project is giving new hope to the industry.
An Alberta government cabinet order has given the go-ahead to Brion Energy’s steam-driven Dover bitumen project, setting the stage for PetroChina to acquire the 40 percent of Dover that it does not already own, giving Athabasca Oil Corp., AOC, the money it needs to develop other prospects, notably Alberta’s liquids-rich Duvernay formation.
That came on the heels of an end to a two-year legal showdown between Brion and the Fort McKay First Nation, FMFN, a community of 700 people in the Athabasca oil sands region of northeastern Alberta.
In February, FMFN settled a disagreement with Brion over the size of a protective zone between the oil sands operation and the aboriginal community’s hunting territory.
Up to C$700 million per year It was yet another victory for FMFN, which estimates its Fort McKay Group of Cos. collects up to C$700 million a year in revenues from nine joint ventures it has created to provide services to the oil sands industry, including accommodation for oil sands workers hired by Suncor Energy and Canadian Natural Resources, drilling and service rigs, long-haul fleet service, cement and gravel and an industrial park.
FMFN has broken ranks with many of its peers by opting to take advantage of resource development, in return for what FMFN Chief Jim Boucher said is an opportunity to provide employment, hope and opportunities for his community.
He is unable because of a non-disclosure clause to divulge the commercial details of the joint ventures, but said FMFN is holding discussions with other First Nations on ways to exploit opportunities and establish partnerships to “manage the risks associated with resource development.”
The Brion-FMFN deal, which covers environmental protection, fiscal terms and business opportunities — “shows the industry that it is all about relationship management,” said Phil Skolnick, an analyst with Canaccord Genuity.
He also said the sale of the Dover project to PetroChina should lead to a joint venture for AOC in the Duvernay by removing a financial overhang.
Bill Gallagher, a lawyer who handles aboriginal issues, told the Financial Post that Brion and FMFN have both achieved a “social license” victory and taken a “huge step on the greening of the oil sands internationally.”
Final decisions On the Brion side, the project application has been turned over to the government’s Alberta Energy Regulator for a final decision on environmental issues.
“The approval process has been long, but we have achieved the expected outcome,” said AOC Chief Executive Officer Sveinung Svarte.
For AOC the deal is becoming a matter of pressing importance, with the company posting a loss of C$40.1 million in the fourth quarter, compared with a year-earlier profit of C$306 million, as it lives in hopes of the oil sands transitions.
If PetroChina concludes its transaction with AOC it will have shown Asian companies there is more than one way to gain a foothold in the oil sands. Another is the accumulation of exploration rights through government land auctions.
Ivanhoe suspends work But the headwinds faced by smaller oil sands players took their toll on a project operated by Ivanhoe Energy, which suspended work on its C$1.37 billion Tamarack steam-powered project that was planned to deliver its first oil in 2017 and to eventually yield 20,000 barrels per day.
The company was aiming to attain full commercialization by using its patented and proprietary heavy-to-light upgrading technology.
It said 2013 was a “challenging year,” because of government regulatory processes, market conditions and difficulties raising capital.
In particular, Ivanhoe pinned the blame on the government’s Alberta Energy Regulator, which has stalled review of five applications for shallow thermal projects while it studies factors that could affect reservoir containment in the operations that are designed to produce a combined 1 million bpd.
The company said in a news release it was forced to sideline the project because the AER had declined to set a timeline for a new regulatory framework.
Ivanhoe’s strategy is to acquire regulatory approvals, then arrange financing or find a partner to develop a project.
The company, which has interests in Ecuador and Mongolia, reported a net loss for 2013 of US$143.8 million compared with a loss of US$64 million in 2012. Its capital spending had been scaled back to US$17 million from US$47.4 million in 2012.
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