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Global players stay the course
Although rocked by Alberta’s proposed royalty changes, international companies operating in the oil sands are pushing ahead with plans for new projects.
France’s Total, Norway’s StatoilHydro and U.S.-based Marathon Oil say the potential of the vast resource outweighs any downside impact of higher royalties.
Speaking to a Calgary conference, executives of the three companies said their long-term objectives are unchanged — Total to produce 250,000 barrels per day by 2015; Marathon to spend C$1.9 billion converting its Detroit refinery to handle more heavy crude, while making upstream plans to produce 130,000 bpd by 2020; and StatoilHydro to reach 200,000 bpd by 2020.
Worse than worst-case StatoilHydro’s North American CEO Geir Jossang said the royalty changes were worse than his company’s worst-case scenario when it acquired North American Oil Sands Corp. nine months ago.
In planning to hike royalties from 1 percent to 9 percent while project costs are paid off and from 25 percent to 40 percent after payout, depending on oil prices, Alberta cuts a “good chunk of the net-present value,” he said.
But that has not slowed StatoilHydro’s preliminary engineering work on its Kai Kos Dehseh project, although the royalty changes and rising capital and labor costs pose a challenge in developing final cost estimates, he said.
Total has broad plans to spend C$10 billion to C$15 billion on new mines and an Edmonton-area upgrader, said Canadian President Michael Borrell.
It expects the Alberta Energy Resources Conservation Board to start public hearings in the first half of this year, allowing Total to make a sanctioning decision in 2009.
Both executives said they are also braced for carbon taxes and other government-imposed limits on greenhouse gas emissions, but rather than wait for those measures to be announced they are working GHG reduction plans in their engineering designs.
CO2 network planned Borrell said Total has also joined an industry consortium that hopes to work in conjunction with governments to build a pipeline network to collect and dispose of carbon dioxide.
However, Jossang emphasized that federal and provincial aid is needed. “This is something we cannot do alone,” he said.
Marathon Executive Vice President Gary Heminger said his company — which acquired Western Oil Sands for C$6.5 billion last year — estimates its Detroit refinery conversion will run to about one-third the cost of building an upgrader in Alberta.
He also warned that the upgraders either completed or planned by Syncrude Canada, Canadian Natural Resources, Royal Dutch Shell, Petro-Canada and Suncor Energy — all of them designed to convert bitumen into synthetic crude — could see North America saturated with synthetic crude in the medium term, pushing prices down.
“I would submit there’s a lot more value in narrowing the differential between bitumen and crude oil than in trying to tweak (royalty) numbers.”
Bitumen-WTI discount Heminger argued that the heavy discount between bitumen and West Texas Intermediate oil could be reduced by increased pipeline access to refineries and markets in the United States.
He said refinery conversions in the U.S. will raise demand for Canadian heavy crude, while planned new pipelines from Alberta will deliver oil sands production to the U.S. Gulf Coast refineries that can already process heavy crude.
That should narrow the price differential in the medium- to long-term, but potentially make the construction of upgraders less attractive.
If the majority of refineries are set up to handle heavy sour crudes by 2020-25 that will reduce the demand for synthetic crude, Heminger said.
Jossang has a different view, saying StatoilHydro, in examining all options for its proposed Kai Kos Dehseh project, currently believes that building an associated upgrader is the best way to “achieve value” in Alberta.
Converting bitumen from the oil sands into light synthetic crude or gasoline can be done at upgraders, whose costs run into billions of dollars, or at refineries that have been specifically built or converted for the purpose and cost less than upgraders.
—Gary Park
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