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Delivering a rebuke: Imperial Oil slows Aspen oil sands project work
Gary Park for Petroleum News
A mere five months after giving the go-ahead to a new C$2.6 billion oil sands project in Alberta, Imperial Oil has done an about turn, delaying the scheduled startup date by a year to 2023.
In the process it has delivered on a threat to slow down spending on its Aspen project unless the Alberta government backed away from its current production cutback in an effort to reduce the price gap between West Texas Intermediate and Western Canada Select prices.
“This was a difficult choice in light of our final investment decision in Aspen,” said Imperial’s Chief Executive Officer Rich Kruger. “However, we cannot invest billions of dollars on behalf of our shareholders given the uncertainty in the current business environment.”
Aspen was scheduled to add 75,000 barrels per day to Imperial’s average 2018 volumes of 383,000 barrels of oil equivalent per day, led by 206,000 bpd from its Kearl heavy crude operation that reached 230,000 bpd in the second half of last year.
Imperial is among a handful of larger producer/refiners who oppose the production curtailments, which took effect in January after Alberta Premier Rachel Notley ordered output to be reduced by 8.7 percent or 325,000 bpd, to shrink the price discount.
Even in the two months leading up to the cutback, Notley’s strategy seemed to achieve some of its desired results with the spread between the two benchmark prices dropping from US$44 a barrel to US$10 in the first week of March.
However, National Bank Financial said Imperial may soon be joined in ramping down other “near-term projects,” citing Cenovus Energy’s Christina Lake expansion, Canadian Natural Resources’ Kirby North Project and CNOOC’s Long Lake expansion.
Canadian Natural: market order Despite these doubts and Imperial’s complaints, Canadian Natural said earlier in March that Alberta’s curtailment plan was working so well that it likely won’t be needed for much longer.
Executive Vice Chairman Steve Laut said the Canadian oil market was “very rocky in the fourth quarter (of 2018) with dysfunctional marketplace dynamics driving historically high differentials for both heavy and light oil in Canada.”
He said the current quarter “is a completely different story ... market order has been established.”
Those comments put him in stark contrast with Imperial, Suncor Energy and Husky Energy, who said their refining assets and pipeline contracts allowed them to profit from steep price discounts.
Canadian Natural produced 1,079,000 barrels of oil equivalent per day in 2018, up 12 percent from 2017, including 426,190 bpd of synthetic crude.
But the company has opted to advance a maintenance turnaround at its Horizon oil sands mine and is considering delaying the startup of its 40,000 bpd Kirby North project as well as new wells expected to add 26,000 bpd of production top its Primrose thermal oil operation.
Notley said her government has been in close contact with Imperial, describing her curtailment decision as making the best of a bad situation while she tries to break the regulatory logjam that is blocking new pipelines.
“We want to phase out curtailment as soon as we can, but we have an obligation to make the best decision we can,” she said.
- GARY PARK
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