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Foreign legion flees: Alberta oil sand exodus reverses 10-year fear
Gary Park for Petroleum News
The once stunning invasion of Alberta’s oil sands is just as stunning as it goes into reverse.
Ten years ago the overriding concern was the impact of offshore money on the value of the bitumen resource and the entry of state-controlled companies, notably from China, who were feared to be taking advantage of intellectual and technological advances in Canada.
The dramatic shifts taking place in the oil sands forced the Canadian government to tighten controls on the extent of foreign ownership.
But the worries were mostly short-lived. Instead the spotlight was turned on the struggles for survival among the 240 oil and gas companies listed on public exchanges.
The downturn was driven initially in 2014 by the collapse of oil prices, followed by disenchantment among investors who did not want to be associated with the widely labeled “dirty” oil sands.
During the oil sands boom, the foreign legion sent property values and bitumen production soaring sky high and output attributable to non-Canadian companies climbed from 320,000 barrels per day in 2010 to 647,000 bpd in 2014. But that trend started to turn around in 2018 with “foreign” output easing to 573,000 bpd. Numbers for the last two years are not yet available.
The Canadian Press estimated that the foreign working interest percentage followed a similar path, rising from 22% of total oil sands production of 1.44 million bpd in 2010 to about 33% of 1.98 million bpd in 2014, then 20% of 2.9 million bpd in 2018.
It is fair to assume the slump has gathered pace as the scramble for the exit door has turned into a frenzy with companies such as ConocoPhillips, Murphy Oil, BP, Shell, Total and Norway’s state-owned Equinor (formerly Statoil) leading the charge.
Equinor decamping In mid-January, Equinor announced it was decamping from Alberta and moving staff to Newfoundland.
The company said it decided to “improve organizational efficiencies in our Canadian business and align with our updated Canada business strategy,” which meant it would no longer evaluate business opportunities in Canada’s onshore energy industry.
It divested its Western Canadian assets in 2017, by selling its oil sands holding to Athabasca Oil for C$832 million, leaving it with a minority stake in Newfoundland’s Hibernia, Terra Nova and Hebron offshore projects and hydrocarbon discoveries announced late last year in the Flemish Pass basin, although it has yet to release estimates of how much crude those formations could yield.
The moves by Equinor make it one of the few international companies to divest from the oil sands but continue looking at other oil projects in Canada.
“This is definitely an interesting case,” said Joseph Marchand, associate professor of economics at the University of Alberta, who noted that over several decades Alberta drew workers from Newfoundland rather than sending them the other way.
Rob Strong, an industry consultant, said Equinor’s decision bodes well for Newfoundland, noting that the company is 67% owned by the Norwegian government.
Cenovus Energy An almost parallel move is underway as oil sands major Cenovus Energy completed its C$3.8 billion takeover of Husky in January, including the Sunrise upstream asset and an upgrader, which converts raw bitumen into synthetic crude for future refining into fuels.
That leaves Husky to retain its Newfoundland offshore assets and Cenovus with the unpleasant duty to lay off an estimated 2,000 employees in Calgary.
“Consolidation needs to happen to lower the cost base for the industry, but more particularly for us. In the case of Cenovus they have the same driver,” said Rob Peabody, Husky’s chief executive officer.
The newly merged company is expected to reduce spending and overhead by as much as C$1.2 billion a year.
In the last year, the oil sands have taken two major body blows, with Teck Resources canceling its C$2.0.6 billion Frontier project, having failed to find a partner to share the risks, while Imperial Oil indefinitely postponed its C$2.6 billion Aspen project.
Tom Buchanan, a senior adviser at investment bank Origin Merchant Partners, told the Globe and Mail crude prices would have to rise above US$50 a barrel to revive hopes of breaking ground on new projects. “Everyone’s focus is now on running existing projects efficiently,” he said.
Junior companies Attention has also turned to the thinning out of junior companies who have little or no hope of raising capital.
The result for the oil sands and Canada’s wider petroleum sector will be a continued round of consolidation, with control being dominated by a shrinking number of Calgary-based companies, turning the clock back to the high-risk beginnings of commercial oil sands production in the late 1960s.
- GARY PARK
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