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Statoil buckles under project costs
Gary Park For Petroleum News
Just nine months after ending a joint venture in northern Alberta’s oil sands, Statoil has delivered a follow-up blow.
The company, which is two-thirds owned by the Norwegian government, said Sept. 25 it was shelving plans for a 44,000 barrels-per-day expansion of its thermal-recovery Corner project, with about 70 people likely to lose their jobs.
In the process, it joined a list of oil sands projects that have been put on hold because of cost concerns, including the Joslyn project operated by France’s Total, which resulted in the loss of 150 jobs.
The most glaring recent example of soaring costs was reflected in an 18 percent hike in the budget for Imperial Oil’s Kearl project.
Stale Tungesvik, president of Statoil’s Canadian subsidiary, offered two simple reasons: Rising costs for materials and labor and the shortage of pipelines to access markets, with the stalled Keystone XL and Northern Gateway pipelines at the top of that list.
He said the rising costs over recent years are “working against the economics of new projects” in the oil sands at a time when operators are under pressure to make their assets and operations “more profitable and more cost-efficient.”
“Market access issues also played a role (in postponing the multibillion dollar expansion) including limited access which weighs on prices for Alberta oil, squeezing margins and making it difficult to achieve sustainable returns,” Tungesvik said.
He said the decision is in line with Statoil’s strategy to assigned capital to the “most competitive projects in its comprehensive global portfolio and is consistent with our stepwise approach to the oil sands.”
Acquired in 2007 Statoil bought the Kai Kos Dehseh oil sands operation - which includes its Leismer and Corner projects - when it acquired North American Oil Sands in 2007 for C$2.2 billion, then took on Thailand’s state-owned PTTEP Exploration as a 40 percent partner in 2011.
Earlier this year, unhappy with the outlook for the sector, Statoil divided its leases, keeping 100 percent of Leismer, which is in production with a capacity of 20,000 bpd, and Corner, and turning control over three other leases to PTTEP.
Although Statoil did not release estimates, Michael Dunn, an analyst with FirstEnergy Capital, said Corner would probably have cost C$2 billion to complete, based on the industry yardstick of C$50,000 per barrel of production.
Dunn suggested Statoil faced the special challenge of developing Corner as a greenfield project, unlike Cenovus Energy and MEG Energy which move to adjoining leases to achieve growth.
However, Statoil is not retreating on all fronts in Canada, remaining committed to its joint venture with Husky Energy to develop a major oil field discovered offshore Newfoundland last year, with drilling due to start soon in the Bay du Nord area.
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