Writing Off Oil Sands Investments

It has been a week since the Supreme Court decided it will not hear an appeal by the Squamish Nation, Tsleil-Waututh Nation and Coldwater Indian Band. Trans Mountain currently has 4,919 people working on its controversial pipeline expansion. This project is expected to bring a sevenfold increase in the number of oil tankers plying the waters off Greater Vancouver. Yet even while we read that this project is going forward, another giant oil company is writing off oil sands investments. 

Total’s ‘Stranded’ Assets

Yesterday (July 29), the French energy giant Total announced “exceptional asset impairments  that will therefore be taken into account in the 2nd quarter of 2020 amount to 8.1 B$, including 7 B$ on Canadian oil sands assets alone, impacting the gearing ratio of the Group by 1.3%.”

The oil giant expects investments in the oil sector to peak by 2030.

“ … in line with its new Climate Ambition announced on May 5, 2020, which aims at carbon neutrality, Total has reviewed its oil assets that can be qualified as “stranded”, meaning with reserves beyond 20 years and high production costs, whose overall reserves may therefore not be produced by 2050. The only projects identified in this category are the Canadian oil sands projects Fort Hills and Surmont.”

“ … Total will not approve any new project of capacity increase on these Canadian oil sands assets. Finally, still consistent with the Climate Ambition announced on May 5, 2020, Total decided to withdraw from the Canadian association CAPP considering the misalignment between their public positions and the Group’s ones.”

Shell and BP

This follows similar decisions by Shell and BP. 

In 2017, Shell reduced its share in the Athabasca Oil Sands Project from 60% to 10%.

Shell Chief Executive Officer Ben van Beurden explained, “This announcement is a significant step in re-shaping Shell’s portfolio in line with our long-term strategy. We are strengthening Shell’s world-class investment case by focusing on free cash flow and higher returns on capital, and prioritizing businesses where we have global scale and a competitive advantage such as Integrated Gas and deep water.”

On the BP website, it says, “We recognize that oil sands projects raise environmental challenges and we are actively seeking ways to undertake these projects while minimizing the environmental footprint.” 

When BP reduced its long-term oil price outlook $17.5 billion last month, “resources in Canadian oil sands and ultra-deepwater wells off Angola” were suddenly described as “uneconomical.”

The Trans Mountain Pipeline – courtesy National Energy Board

Remember Kinder Morgan?

After Kinder Morgan threatened to walk away from construction in early 2018, the Canadian government swooped in to purchase the Trans Mountain Pipeline. The immediate cost to the taxpayers was $4.5 billion, which 99.98% of the pipeline’s shareholders at a special meeting in the Calgary conference centre subsequently agreed was a good deal.

Last February the government estimated pipeline’s production costs had risen from $7.4 billion to $12.6 billion.

Finance Minister Bill Morneau  explained, “The project will deliver $1.5 billion of available cash flow once it’s finished, which means it remains commercially viable and, I think, very interesting for the eventual commercial buyers that we’re going to be seeking, because we don’t intend on keeping this in government hands.”

Slow To Ramp Up Production Again

That was all prior to COVID.

Husky Energy just released its Second Quarter report. 

“The early actions we took in the first half of 2020 to dial back production in response to the severe reduction in product demand has effectively stabilized our business, and in May and June, our net debt position,” explained CEO Rob Peabody.

Their refinery capacity has been increasing and in June reached 85%.  

According to Bloomberg, Oil Sands companies are slow to ramp up production again. 

Mark Oberstoetter, lead analyst for Wood Mackenzie Ltd. said the margins aren’t that appealing. 

“At this price, their plans to bring back production are economically viable, but it’s not like they are going to rush.”

Top photo credit: Oil tanker by Bernard Spragg. NZ via Flickr (CC BT SA, 2.0 License)