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Providing coverage of Alaska and northern Canada's oil and gas industry
April 2009

Vol. 14, No. 14 Week of April 05, 2009

Hold off on the burial

Canadian oil sands get unexpected lift from Suncor/Petro-Canada merger; ConocoPhillips to finish projects; more M&As possible

Gary Park

For Petroleum News

To misquote Mark Antony, in his funeral oration for Julius Caesar: “I come to bury the oil sands, not to praise them.”

And, to borrow from Mark Twain: “Reports of the oil sands’ death are greatly exaggerated.”

In recent weeks, the vast northern Alberta resource has experienced a hammering that would have been unimaginable a year ago.

Projects valued at more than C$100 billion have been shoved into the deep freeze, driving thousands of industry professionals and construction workers on to the streets.

But, just when the sector appeared doomed for the foreseeable future, it has suddenly turned itself around.

Consider these developments:

*The oil sands-driven mega-merger of Suncor Energy and Petro-Canada that has Suncor talking about a revival of its C$20.6 billion upgrader and mine expansion before mid-year and a possible fresh start for elements of Petro-Canada’s C$25 billion Fort Hills operation.

*An increasingly heated takeover battle for UTS Energy, a 20 percent partner in Fort Hills, ignited by France’s Total.

*A buzz among analysts that other oil sands players could find themselves in the takeover crosshairs, not least Nexen, which is always high on the list of candidates. ExxonMobil, through its 69.6 percent share of Imperial Oil, has US$31 billion in available cash and an appetite for bulking up on unconventional plays, which, according to a study by IHS Herold, accounted for 40 percent of global energy deals in 2008.

*Word from ConocoPhillips that it intends to finish oil sands projects currently under construction, despite corporate belt-tightening, with C$1.2 billion earmarked this year for the Foster Creek and Christina Lake projects it is developing through a joint-venture with EnCana.

*A lively defense of the oil sands, which found itself besieged from all sides, notably in the February issue of National Geographic, which unloaded what was described as a “seven-color smear job on behalf of the environmental movement (with no effort) to offer any balance.”

National Geographic ‘smear job’

In an article entitled “The Canadian oil boom: Scraping the bottom,” the magazine offered its 50 million readers a 20-page spread of pictures capturing sludge-filled tailings ponds and the bleak countryside around Fort McMurray, Alberta.

“In northern Alberta the question of how to strike the balance (between economics and the environment) has been left to the free market and its answers have been to forget about tomorrow. Tomorrow is not its job,” National Geographic said.

Canada’s National Post provided some of the rebuttal, accusing the magazine of using the “same one-side techniques” as those applied by “diehard environmentalists” against the oil sands.

“For instance, even though Alberta’s heavy oil deposits contain no tar, eco-crusaders love to refer to them as ‘tar sands,’ since tar sounds so much dirtier than oil.

“And it is almost impossible these days to read a news release or story about the sands without seeing their production referred to as ‘dirty oil,’ as though that were a statement of fact rather than opinion,” the newspaper said.

An unlikely defense

The Post noted that a buffalo herd on some of the reclaimed land at the Syncrude Canada operation has a better than 99.8 percent success rate in live births of buffalo calves — better than the 70 percent rate among wild buffalo — a key reason why the northern Alberta population has been able to rebuild from near-extinction in the early 1990s.

What the National Geographic accomplished was to forge an unlikely alliance in defense of the oil sands by the federal Conservative government (which has always been pro-development) and the opposition Liberals (who only a year ago were proposing a raft of carbon taxes expected to generate C$15.3 billion within four years).

The Liberals’ policy was blamed in part for their defeat in last October’s election and the toppling of their leader Stephane Dion.

Michael Ignatieff, the new Liberal leader, has sailed a different course, saying the “National Geographic is not going to teach me any lessons about the oil sands.”

“This is a huge industry,” he said. “It employs Canadians from coast to coast. We have oil reserves that are going to last for the whole of the 21st Century. We are where we are. We’re going to clean it up and we’ve got to make it a sustainable place to work and live.”

However, Ignatieff did accuse the Conservative government of having “done nothing” to clean up the oil sands, adding: “My concern is that, at the moment, it’s barely environmentally sustainable and it’s barely socially sustainable. But am I proud of this industry? You bet. It’s a world leader.”

He said the Canadian government needs to work with the Alberta government and the industry to create a cap-and-trade system for carbon that places a ceiling on greenhouse gas emissions.

U.S. Chamber rallies

Plenty of others have rallied to the oil sands, not least Karen Harbert, president and chief executive officer of the U.S. Chamber of Commerce Institute for 21st Century Energy.

She told a news briefing in Calgary March 19 that the U.S. and Canada should join forces to fend off the “dirty oil” label that has been attached to the oil sands over the past year.

Decrying a gap between “rhetoric” and “reality,” she said the oil sands are a key aspect of the economic well-being of both countries, which depends on access to affordable and abundant energy supplies.

Harbert said the campaign by environmental groups against a specific kind of oil from a specific part of the world is “unprecedented” on a global scale.

The “dirty oil” tag has been an “easy slogan to glob on to. … It’s an environmental campaign based on myth that needs to be debunked,” she said.

Harbert also expressed confidence that the Obama administration will not carry through with threats to limit U.S. imports of “dirty fuel,” arguing that security of supply consistently overrides climate change in U.S. public opinion polls.

“If we were to shut off the supply of oil from Canada tomorrow (currently meeting about 20 percent of U.S. needs) what would happen to prices in the United States and is that a tolerable trade-off?” she asked.

“It is our view that we have a common interest,” Harbert said. “A healthy Canadian economy is good for America and a good American economy is good for Canada … we believe that message needs to come through louder and clearer.”

Joining the lobbying chorus, Philip Verleger, an oil and gas economist at the University of Calgary’s Haskayne School of Business, urged Canadian government and energy leaders to waste no time meeting with U.S. lawmakers such as Henry Waxman, chairman of the House Energy and Commerce Committee, before a climate change bill is introduced.

He warned that “it is all green all the time” among Obama government insiders, making it imperative for Canadians to show how proactive they are in addressing environmental concerns and how much they support a cap-and-trade system for carbon trading.

Canadian counter-lobby

The Canadian industry is showing it is not prepared to lie down and play dead.

Faced with mounting pressure from environmental groups and big institutional investors, a group of small companies is staging a counter-lobby under the umbrella of the In Situ Oil Sands Alliance, making a case that the use of steam-assisted extraction methods leaves a far smaller environmental footprint than open-pit mining that has dominated the operations of Suncor and Syncrude Canada.

The in-situ method does not create tailings ponds of toxic substances, uses only 20 percent of the water of mining projects and uses mostly brackish rather than fresh water.

“I think it’s totally unfair that (in-situ bitumen) is seen as dirty oil,” said Sveinung Svarte, president of Athabasca Oil Sands.

“If the Americans really sat down and looked at all the different environmental aspects, they would see that California oil is as polluting as bitumen (from in-situ projects),” he said. The alliance members also include Laricina Energy, MEG Energy, Osum Oil Sands and Petrobank Energy and Resources.

But opponents are not swayed by the alliance’s claims.

The Ceres investor group — coalition of pension funds and non-governmental organizations — has placed Canadian Natural Resources and Chevron on a “climate watch list” because of their alleged failure to tackle environmental problems in the oil sands.

Ceres President Mindy Lubber said “extracting oil from tar sands is a dead end on the road to a clean energy future and a risky venture for investors.”





Use ‘bans, tolls’ to protect jobs

A report by the Alberta Federation of Labor has pressured the Alberta government to act swiftly on measures to ensure oil sands upgraders, refineries and petrochemical complexes are built in the province, or risk losing tens of thousands of jobs.

Those short-term actions could range from banning the export of raw bitumen or imposing steep pipeline tolls to make exports cost-prohibitive, said federation President Gil McGowan.

He told a news conference he doubts the government of Premier Ed Stelmach grasps the fully gravity of what is at stake.

“Do they realize we’re in a race and we’re losing?” he asked.

Over the longer term, McGowan said Alberta should resort to a mix of regulation and public ownership to kick start the creation of processing and petrochemical plants.

The report also recommends establishing a government corporation to keep more value-added jobs in Alberta and make it easier for the government to tackle environmental matters.

A spokesman for the government said the federation’s ideas are not currently being considered, but “we’re prepared to consider a variety of options to help meet the value-added goals over the long term.”

To that end, he noted that the government has recently extended a lease on the Fort Hills oil sands deposit to 2019 in return for a commitment from the operators to upgrade bitumen in Alberta.

—Gary Park


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