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TotalFinaElf builds North American base Brushes off Kyoto concerns by taking 43.5 percent stake in Alberta oil sands project; open to Arctic opportunities; could add Mackenzie Delta to Alaska leases Gary Park PNA Canadian Correspondent
French energy giant TotalFinaElf SA is quietly expanding its footprint in North American frontier areas and is not ruling out further growth, including a stake in the Mackenzie Delta.
Having already established its presence as a leaseholder in the National Petroleum Reserve-Alaska and as operator of a natural gas gathering system in the deepwater Gulf of Mexico, the fifth largest international oil company has taken the plunge into Alberta’s oil sands.
Spurning concerns that the Kyoto Protocol will drive up oil sands costs and deter foreign investment, TotalFinaElf announced Jan. 6 that it was acquiring half of the ConocoPhillips Canada Ltd. 87 percent share of the planned C$1 billion Surmont development, leaving Devon Energy Corp. holding the remaining 13 percent.
The purchase price was not disclosed, but it comes on top of TotalFinaElf’s share of development expenses for Surmont, which is targeting 100,000 barrels per day, using steam injection to extract the bitumen. It hopes to come on stream in 2005 and recover from 5 billion to 10 billion barrels of reserves over a 40-year operating life.
ConocoPhillips said it expects to make a decision this year on whether to proceed, once it gets a ruling from the Alberta Energy and Utilities Board and calculates the costs of Kyoto on oil sands operations.
The Paris-based company, which has incorporated TotalFinaElf E&P Canada Ltd. as a private company, initially agreed in 1999 to participate in financing development of the Surmont project when the property was owned by Gulf Canada Resources Ltd. before it was taken over by Conoco.
A spokesman for TotalFinaElf said his company will place at the disposal of the Surmont consortium its heavy oil experience from Venezuela where it has a 47 percent stake in the US$4.2 billion Sincor project within the Orinoco belt.
Otherwise, TotalFinaElf’s North American interests include the blocks it won in last June’s Bureau of Land Management federal oil and gas lease sale in the NPR-A, while it is one of five working interest owners in three fields tied into three deepwater gas fields in the Gulf’s Mississippi Canyon and as operator of the related Canyon Express subsea gas line.
The decision to join Surmont is seen by ConocoPhillips as a “vote of confidence” in the project and the oil sands.
Other Canadian expansion possible Jean-Luc Guiziou, president of TotalFinaElf’s Canadian unit, said his company is looking to become a major participant in the oil sands and possibly build a multi-billion dollar upgrader to convert the bitumen into synthetic crude.
He said TotalFinaElf may also seek a role in Canada’s other key petroleum frontiers by expanding its conventional oil and gas E&P operations to the Mackenzie Delta and East Coast offshore.
He said the Kyoto Protocol is part of an international effort to tackle the serious matter of greenhouse gas emissions and the petroleum industry should be ready to contribute to the research on ways to implement the climate-change treaty.
The move softens some of the alarmist views of Kyoto’s impact on the oil sands sector, which has seen a number of companies threaten to set up their refining operations in the United States to bypass the climate-change treaty, or shelve plans altogether.
The jury is still out for a long list of companies — TrueNorth Energy Inc., Canadian Natural Resources Ltd., Petro-Canada, EnCana Corp. and Nexen Inc. — which have proposed billions of dollars worth of oil sands ventures but remain uneasy about Kyoto-related costs.
Kyoto cost estimates down However, there was one glimmer of hope Jan. 9 when oil sands Suncor Energy Inc. said it estimated the exposure to Kyoto would add 20 to 27 cents per barrel to its cash oil sands operating costs — a far cry from some dire predictions of C$1.50 to as high as C$7 per barrel. Some analysts have even concurred with the Canadian government’s estimates that the final cost could be as low as 12 cents per barrel.
Suncor said its own projections would not have any “material impact” on its current production of 225,000 barrels per day or its long-range plans to achieve 500,000 barrels per day by 2010.
Gordon Lambert, vice president of sustainable development at Suncor, said the updated estimates by Suncor indicate the Kyoto costs are “manageable.”
The calculations were based on a Canadian government promise Dec. 18 to cap the cost of meeting emissions reduction targets at C$15 per metric tonne during the initial Kyoto implementation period of 2008 to 2012.
Suncor’s projections are consistent with a recent Lehman Brothers report, which put incremental costs for Canadian Natural Resources’ C$8 billion project at 20 cents per barrel and for a joint venture by Nexen and OPTI Canada Inc. at 34 cents per barrel.
Because the federal cap does not extend beyond 2012, Canadian Natural has indicated it is still weighing its options given that its project has an expected operating life of 50 years.
The undercurrent of lingering concern is reinforced by a recent study by U.S. investment firm J.S. Herold that suggests Canada’s finding and development costs are already the highest of any major energy-producing country. Any increases, no matter how apparently small, are unwelcome.
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