Shell Swears Off New Tar Sands/Oil Sands Projects as Fossil Majors Shift to Acquisitions
Royal Dutch Shell has become the latest tar sands/oil sands operator to call a halt to new project development in Canada’s tar sands/oil sands.
In an interview published this week, Bloomberg reports, CEO Ben Van Beurden said his company “is unlikely to take on new oil sands projects as it maintains a grip on costs after crude’s crash forced competitors to write down Canadian reserves.” Both Conoco Phillips and ExxonMobil recently “de-booked” significant reserves in Alberta’s tar sands/oil sands region, indicating they no longer consider them economical to develop.
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Citing Van Beurden, the outlet reported that “while Shell’s existing oil sands operations generate strong cash flows, the expense of developing new projects discourages additional investments.”
Investor jitters over Canada’s high-cost synthetic crude are worsened by political uncertainty south of the border, the Globe and Mail reports: “The spectre of a border adjustment tax championed by U.S. Republicans remains a top concern for its potential to render Canadian crude exports less competitive than shale production in the United States. Pipeline constraints in key exploration zones and big reserve writedowns by major oil sands producers have only added to pessimism dogging the sector.”
“It certainly doesn’t get anyone who’s not in the space thinking they should be looking at it,” Rob Bedin of Calgary’s RS Energy Group told the paper.
Oil prices are inching back up from their 2014 trough, but are still far from the US$80-per-barrel range at which many bitumen extraction operations begin to be comfortably profitable, JWNEnergy observes. But big incumbents are staying put and digging in. Suncor Energy, Canadian Natural Resources, Cenovus Energy, Imperial Oil, and MEG Energy have all “sent strong signals they are all-in” on the tar sands/oil sands, the industry news source reports, “by either bulking up their holdings or announcing shorter-cycle expansion plans.”
JWN sees “large-scale projects sanctioned prior to the downturn” being completed this year, but no ground broken for big new developments. Instead, it says, the industry is focused on “reducing costs, deploying new technologies and streamlining operations.”
Those objectives all favour size, comments Jackie Forrest, vice-president of energy research at ARC Financial in Calgary: “If you’re going to be the low-cost supplier, scale matters. I think you will see more consolidation in order to get economies that come from greater scale.”
That suggests a period of corporate “growth” by cannibalism in the tar sands/oil sands, as the biggest players double down on a competition for market share by picking up remaining smaller operators, a variety of reports suggest.
“I think the large players will remain the large players,” agrees Greg Pardy, who co-leads energy research for RBC Capital Markets. “If anything, the larger companies become bigger at the margin. But I don’t think over the next two or three years that you’re going to see massive changes coming.”