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Canada risky, uncertain
Imperial Oil, unhappy with red tape, backs off growth opportunities, limits capex
Gary Park for Petroleum News
With billions of dollars of foreign-sourced capital investment being scaled back and hundreds of industry employees still collecting pink slips, the impression is building that Canada’s oil patch is in an irreversible decline.
And just in case anyone thought a reversal might still be possible that hope has been dealt a setback by Imperial Oil - 70 percent owned by ExxonMobil and long the powerhouse of Canadian oil development and refining - whose Chief Executive Officer Rich Kruger delivered the bleakest of messages to The Globe and Mail and the National Post, Canada’s two national newspapers.
He said Imperial has stopped all new growth spending until governments act to improve competitiveness and reduce red tape, noting that his own company will, at most, spend only C$1.7 billion this year just to “care and feed” its existing asset base.
“This is not a place where Canada has been historically,” he said. “We all shy away from risk, beyond the technical and operational risk we accept. And today there is more risk and uncertainty,” Kruger said in a rare public expression of his company’s thinking.
If anything, Imperial, despite 138 years of almost unblemished success, has traditionally been the most tight-lipped of Canada’s major energy companies and the slowest to embark on new ventures.
Warning But in a clear warning to political leaders, he said “the real determination of what our near-term or medium-term investment will be will largely hinge on how the competitiveness situation is addressed.”
Reflecting that corporate mood has been a halt to plans for a C$4 billion, 150,000 barrels per day Aspen in situ oil sands project in Alberta, which was first submitted for regulatory approval at the end of 2013, despite offering an advanced technology that would reduce greenhouse gas emissions intensity by 25 percent and achieve a similar goal in water consumption.
“I have lived and worked in a lot of places (during 37 years with ExxonMobil) and four and a-half years to get a project that has strong economics, pace-setting environmental performance, is inordinately long,” he said earlier this year. “That is not world class.”
Drawing on Imperial’s playbook, Kruger said his company views Aspen as a “winner,” although the venture will not go ahead even with final approval until the conditions are weighed and a judgment is rendered.
Cold Lake stalled Expanding operations at the Cold Lake heavy oil operation in northeastern Alberta by 55,000 bpd from the current capacity of 180,000 bpd achieved through measured growth over 43 years has also been stalled by regulators.
Kruger is encouraged by the Canadian government’s acquisition of the existing Trans Mountain pipeline for C$4.5 billion, giving it control over the contentious tripling of capacity to 890,000 bpd, because that move “shows a clear recognition and resolve at the federal level and, from an industrial standpoint, that’s a good thing.”
That move recognized the industry’s efforts to gain access to markets and international oil prices beyond North America, but “that alone will not be sufficient,” he said.
Full confidence in the government cannot be restored until the expanded pipeline is built and shipments start, he said.
He cautioned that Canada’s competitive position will be measured by federal, provincial, municipal and carbon taxes, pointing to the Trump administration’s cuts to corporate taxes as an example.
For now, Kruger noted, “capital is flowing, it’s just not flowing” in Canada.
Syncrude Canada Imperial remains disappointed in the performance of the Syncrude Canada oil sands operation, of which it is a 25 percent owner, but where a “string of events (including a power outage in June that will not be fully repaired until September) over the last several years have led to a performance well below the expectations of any and all owners,” he said.
The Syncrude consortium, whose majority partner is Suncor Energy, is about to start up a coking unit that will convert 150,000 bpd of bitumen into lighter crude.
The senior partners are also examining ways to improve the overall reliability of their bitumen mine, but Kruger said “we have not found the magic elixir yet to enhance” the operation’s reliability.
A new report from the research firm IHS forecasts the oil sands will add 500,000 bpd of output over the next two years, before hitting a deceleration point in 2020, largely because the world still has a glut of crude supplies, with the heavy oil sector taking the brunt of a tightening global market.
Senior IHS director Kevin Birn said the continuing completion of oil sands projects that were sanctioned before oil prices slumped in 2014, the return to some deferred projects and new investments in capital efficiency will mean continued growth over the next 18 months.
The firm said it was likely oil sands production will resume growth in the medium and long term, based partly on the belief that rail can be used to get that new output to market.
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