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.