(Repeats late Friday story with no changes to text)
By Nia Williams
CALGARY, Alberta Feb 24 Canada's energy sector
has fallen out of favor with international oil majors, who are
scaling back ambitions and walking away from reserves in the
ground there to focus on lower-cost and higher-margin
Billion-dollar bets on Canada's oil sands went sour this
week for Exxon Mobil Corp and Conoco Phillips.
Between them, the two companies erased from their books nearly 5
billion barrels of bitumen, the heavy, viscous oil found under
Alberta's boreal forest. This has wiped about $250 billion worth
of oil from their reserves.
Conoco has put $2 billion of Canadian natural gas assets on
The companies joined the list of foreign players to take a
hit in a Canadian energy patch where a two-year slump in global
oil prices has discouraged the high investments needed to get
projects off the ground.
While crude prices have recovered to above $50 a barrel from
a low of $26 a year ago, that is not enough to make Canada's oil
sands profitable. Even some of Canada's conventional energy
plays are expensive at current crude prices.
Canadian producer Husky Energy Inc, owned by Hong
Kong billionaire Li Ka-shing, is weighing the sale of some
Eastern Canadian offshore crude assets, people familiar with the
matter told Reuters.
The oil sands have caused energy companies the most pain.
Devon Energy Corp Chief Executive Officer Dave Hager
summed up the problem this month when discussing the Pike oil
sands project, which awaits a company decision later this year.
"We like the project a lot, but ... it's a little bit lower
return than our well-oriented programs here in the U.S.," Hager
told analysts on an earnings call.
Hager cited capital costs and uncertain future prices as
factors behind the wariness of sinking funds into projects that
take four years to build. Shale plays need less investment,
produce cheaper oil and often provide a fatter return within
President Donald Trump is also expected to loosen U.S.
regulations for oil and gas companies, while the Canadian
government has been planning a carbon tax.
Statoil ASA sold its oil sands project and leases
to Calgary-based Athabasca Oil Corp. CNOOC-owned
Nexen shut down its oil sands upgrader. Royal Dutch
Shell abandoned its 80,000 barrel per day Carmon Creek
project, taking a $2 billion write-down.
"The oil sands are not as sexy as they used to be," said GMP
FirstEnergy analyst Martin King. "The focus is on the United
States - there are more immediate returns and lower drilling
In the days of $100 a barrel crude, and before the U.S.
shale revolution, the oil sands were a red-hot play for
investors, offering huge reserves, low decline rates and a
stable political climate.
Between 2005 and 2015 foreign direct investment in Canada's
oil industry more than doubled to C$130 billion ($99.19 billion)
from C$50 billion, according to Statistics Canada data. That
slowed in 2015 as the crude price rout deepened.
"You would assume it's still slowing down based on lower
prices," said economist Carlos Murillo of the Conference Board
RS Energy Group analyst Rob Bedin noted that Suncor Energy's
Fort Hills, the last of the oil sands mega-projects,
needs U.S. crude prices around $100 a barrel to break even,
compared with $40-$45 a barrel for shale plays in the Midland
While oil sands growth is expected to slow dramatically,
production is not expected to drop. Projects there, once built,
are viewed as a useful addition to companies' portfolios.
Day-to-day operating costs are reasonably low and they produce
Two years ago, producer forecasts of 2026 oil sands
production totalled 6 million bpd, according to RS Energy
research, up from 2.5 million bpd currently.
Last year producers dropped that 2026 forecast to 5 million
bpd, but RS Energy analysis suggests 3.5 billion bpd is more
realistic once company finances are taken into account.
The fate of growth in the oil sands is primarily in the
hands of the domestic Canadian producers like Suncor Energy and
MEG Energy, which are still intent on developing their
back-yard crude resource through improved technology and
carefully planned small-scale expansions.
Canadian reserve reporting rules, which allow the use of
price forecasts from reserve evaluation firms, help domestic oil
sands producers maintain a more positive outlook. The United
States requires producers to report reserves based on last
Still, there are concerns even for oil sands specialists.
These include low crude prices, environmental opposition to
building new pipelines and government carbon emissions caps.
Lack of pipeline capacity has in the past left crude
bottlenecked in Alberta, but now that three major projects are
finally moving forward there are doubts about whether there will
be enough volume to fill them.
Enbridge Inc CEO Al Monaco said two pipelines
should suffice based on the current supply outlook, and the
latest cuts in reserves may make it harder for projects like
TransCanada Corp's Keystone XL to find enough shippers.
"One pipeline is within (oil sands) projects already under
construction," said University of Alberta energy economist
Andrew Leach. "Where it gets more speculative is if you get
beyond one pipeline then your case starts to depend on some
incremental growth into the next decade, which is not sanctioned
and would not be on anyone's reserve books at this point."
($1 = 1.3106 Canadian dollars)
(Editing by Simon Webb and David Gregorio)