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Outsiders on the run Foreign-based companies exit Alberta oil sands, underlining high costs of development; Norway’s Statoil takes biggest step so far GARY PARK For Petroleum News
There has been a two-stage exodus from Fort McMurray over the last eight months that has the northern Alberta city buckling at the knees.
In May a wildfire swept through the so-called capital of the oil sands industry, destroying 2,400 residences and buildings and forcing 90,000 residents to flee for safety.
Most of those who lost their homes are still negotiating with insurance companies, uncertain whether they even want to rebuild, but trapped by insurers who refuse to make cash payouts.
Thousands of them are also victims of layoffs, with little prospect of getting rehired in the oil sands, compounded by a wave of departures by global players.
Statoil most troubling Statoil is the most troubling example of all to this point now that the company owned 67 percent by the Norwegian government has concluded a hasty six months of negotiations by selling the bulk of its oil sands assets for C$832 million to Athabasca Oil, posting a possible writedown of US$550 million on the deal, while keeping a 20 percent stake in Athabasca.
The sale works out to a bargain C$24,000 per flowing barrel of oil equivalent, nine years after spending C$2.2 billion to acquire North American Oil Sands in what at the time seemed like a steal, especially when Statoil unloaded 40 percent of the purchase to Thailand’s national oil company, PTT Exploration and Production, for C$2.3 billion in 2010.
Four years later, Statoil and PTT parted ways through an asset swap that saw Statoil pay US$200 million.
Even so, the Norwegian company, despite a smear campaign in its home country led by Greenpeace, stuck to its plans for a C$10 billion oil sands project.
A Statoil official said on Dec. 15 that his company wanted to “optimize” its portfolio to focus on core assets in Norway, the United States, Brazil and offshore Newfoundland.
He said the global energy market has changed “quite considerably” since 2007, a feeling echoed by a host of other foreign-based investors in the oil sands, notably Total, ConocoPhillips, Chevron, Koch Industries , BP and Repsol, who have either scaled back their interests or are seeking buyers.
Multiple divestments Evaluate Energy has estimated 42 divestments from Canadian oil by external players have totaled US$9.4 billion, raising an unmistakable question about the economics of developing the oil sands because of regulatory delays, environmental opposition and the Alberta government’s plan to raise carbon taxes to C$50 per metric ton.
Paul Fulton, chair of Statoil’s Canadian operations, said the primary reason for selling oil sands assets related to the limit on a company’s ability to lower operating costs, compared with shale plays that also require large capital investments but carry a shorter risk period.
Those odds are compounded by the lack of pipeline access to new offshore markets, shrinking demand from U.S. buyers and a price differential between Western Canada Select and West Texas Intermediate that is at its widest in two years.
The departure of Statoil is also a blow to the Canadian Oil Sands Innovation Alliance, which has 13 member companies committed to sharing research and development technologies.
Total expected to sell Next on the list of expected oil sands sellers is Total, which has a 30 percent stake in Suncor’s Fort Hills oil sands mine, which could yield in the range of C$1 billion.
But not all oil sands players are backing away from the resource, with Cenovus Energy boosting its 2017 capital budget by 24 percent to C$1.2 billion-C$1.4 billion, partly to revive a 50,000 barrels per day expansion of its steam-driven Christina Lake operation, a joint venture with ConocoPhillips which was halted in 2014 as oil prices tumbled.
Chief Executive Officer Brian Ferguson said Cenovus has made “tremendous progress over the past two years in reducing operating costs and sustaining capital. We’re confident we can move forward with projects that have strong potential to drive shareholder value.”
The company said it has trimmed the capital costs for its latest phase at Christina Lake by more than C$500 million.
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