Oil sands sales raise doubt over future development prospects

oil sands

Royal Dutch Shell announced on Wednesday the sale of all of its in-situ and undeveloped oil sands interests in Canada and the reduction of its share in the Athabasca Oil Sands Project from 60 per cent to 10 per cent. Shell photo.

High operating, production costs force Marathon out of oil sands

The province of Alberta and its oil sands, already struggling to compete with cheaper US shale plays, were dealt a major blow when Shell and Marathon announced a major sell off of assets in the world’s third-largest crude reserves.

Royal Dutch Shell and Marathon Oil Corp recently sold off billions of dollars in oil sands assets, moves that some say show global oil majors abandoning the region.

Shell Canada President Michael Crothers said the multinational oil company was selling off large chunks of its oil sands assets to CNRL because they no longer fit in Shell’s international portfolio.

Marathon’s CEO said the numbers did not add up for his company.  “Historically, our interest in the Canadian oil sands has represented about a third of our company’s other operating and production expenses, yet only about 12 percent of our production volumes,” chief executive Lee Tillman said in a statement.

Shifting funds from Alberta to Texas and New Mexico, Marathon announced it is purchasing 70,000 net acres in the Permian Basin shale play.  The company says it is streamlining its portfolio to concentrate on higher margin, lower cost US shale assets.

Dropping oil prices and the withdrawals of these companies have cast a pall on Alberta’s and Canada’s economic outlook.  The energy sector makes up one-sixth of Canada’s economy and in Alberta, oil and gas contribute one-fifth of provincial GDP.

High breakeven costs associated with the oil sands and low commodity prices have resulted in a slowing down of capital investment by 62 per cent in the Canadian energy sector in two years, according to the Canadian Association of Petroleum Producers.

CAPP adds there are few signs of recovery.

 

Some believe stricter federal and provincial regulations are deterring foreign investors from putting money into Canadian energy projects.
Rafi Tahmazian, senior portfolio manager at Calgary-based Canoe Financial LP told Reuters “There’s no incentive for foreign investment to say let’s go into Canada,” he said. “The message sent (by government) is we want Canada to become a national park, which is government-operated and non-revenue generating.”
Some analysts say as a result of the crash in oil prices, Alberta is struggling and a weakened energy industry will likely have long-term knock-on effects.

“This … will eventually force the Alberta economy to restructure and diversify its economic engine,” said Benjamin Tal, senior economist at CIBC in an interview with Reuters.

Posted in: Canada

1 Comment on "Oil sands sales raise doubt over future development prospects"

Trackback | Comments RSS Feed

Post a Comment