Prices slowing oil sands deal-making

ConocoPhillips’ effort to find buyers or partners for 50 percent of its mostly undeveloped oil sands assets in Alberta will stretch well into 2014, more than two years after the search began.

Like others such as Shell Canada, Koch Industries, Marathon Oil, Murphy Oil and Athabasca Oil, which are pursuing a similar path with similar results, ConocoPhillips has encountered uncertainty in the marketplace, which analysts believe stems from fluctuations in oil prices, a shortage of pipeline capacity out of Alberta and high capital costs along with shortages of skilled labor.

Ryan Lance, ConocoPhillips’ chairman and chief executive officer, told analysts his company is “looking at a number of different ways to rebalance” its substantial oil sands portfolio of undeveloped land and joint ventures — valued by some analysts at $5 billion — including 50 percent stakes in thermal recovery operations at Foster Creek/Christina Lake and Surmont along with 100 percent of three large lease holdings.

“We want to maintain some exposure to the oil sands, but rebalance what we have. This year ought to see some efforts along those lines. But we will continue probably well into next year,” he said.

Matt Fox, executive vice-president of exploration and production, said the combined oil sands properties accounted for 100,000 barrels per day net in the second quarter, up 14 percent from a year earlier, with total Canadian oil output at 270,000 barrels of oil equivalent per day.

He said that including various expansion phases at existing operations, ConocoPhillips has seven oil sands projects underway and all are progressing on schedule.

They include the second phase of the Surmont project, which is due on stream in early 2015, while a new phase at Christina Lake should ramp up to 20,000 boe per day within nine months.

Spending on Canadian capital projects totalled almost C$1.1 billion in the first half of this year, up slightly from a year ago.

Samir Kayande, an analyst and oil sands evaluator at the research firm of ITG Inc., said his company has been cool on the oil sands for more than a year because of rising costs that are not matched by revenues.

“Over the past 10 years, you would make investments in marginal projects and the commodity price would always bail you out,” he said.

—Gary Park