(Adds environmental group comment)
By Nia Williams and Ethan Lou
CALGARY, Alberta, March 9 The exodus of
international players from Canada's costly oil sands is raising
fresh doubt over future development prospects for the world's
third-largest crude reserves as the region struggles to compete
with cheap U.S. shale plays.
Royal Dutch Shell Plc and Marathon Oil Corp
sold off billions of dollars in oil sands assets on Thursday,
the latest sign that global oil majors are abandoning the
The withdrawals from the oil sands, a sector viewed less
than five years ago as one of the world's hottest plays, have
cast a pall on Alberta's economic outlook. They are also stoking
criticism of federal and provincial environmental policies that
are stricter than those of the United States.
The energy sector makes up one-sixth of Canada's economy. In
Alberta, oil and gas contributes a fifth of provincial gross
domestic product, and shrinking hydrocarbon investments reduce
government revenue while turning up the political heat.
Canada's main crude-producing province was plunged into
recession as global crude prices crashed. A permanently weakened
energy industry would have far-reaching effects, some analysts
"This ... will eventually force the Alberta economy to
restructure and diversify its economic engine," said Benjamin
Tal, senior economist at CIBC.
The oil sands carry some of the world's highest full cycle
breakeven costs and were battered by the global crude price
crash that began in 2014. Capital investment in the Canadian
energy sector tumbled 62 percent in two years, according to the
Canadian Association of Petroleum Producers, and shows little
sign of recovering.
Shell Canada President Michael Crothers said the company was
selling a large chunk of its oil sands assets to Calgary-based
Canadian Natural Resources Ltd because they did not fit
within Shell's international portfolio, while Marathon more
explicitly summarised the problem.
"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.
As well as selling off a 20 percent stake in the Athabasca
Oil Sands project, now majority-owned by CNRL, Marathon is
buying 70,000 net acres in the Permian basin shale play as it
concentrates on higher-margin, lower-cost U.S. assets.
Shell Canada's Crothers said environmental regulations, such
as carbon taxing, had not played a role in its decision to
offload oil sands assets, a statement Canada's Natural Resources
minister Jim Carr highlighted when he spoke to reporters on
Thursday, adding that he was "positive about the future of the
Similarly, Environment Minister Catherine McKenna said
Canada remained committed to the carbon tax.
But the official opposition Conservative Party said Shell’s
departure reflected how bad public policy and excessive
regulations were driving away investment from Canada.
"This is particularly acute in the context of President
(Donald) Trump in the U.S. planning to aggressively develop
energy domestically, planning significant reductions in
corporate taxes,” said Conservative legislator Shannon Stubbs,
the party's spokeswoman on natural resources.
Rafi Tahmazian, senior portfolio manager at Calgary-based
Canoe Financial LP, said Canada alone does not have the
financial capacity to drive oil sands growth and there are no
government incentives to lure foreign investors.
Environmentalists welcomed news of international majors
pulling out of the oil sands and said they were likely wary of
being locked into long-term investments in the region.
"There isn't much room for bitumen in a low-carbon, low oil
price future and the smart money recognizes that's where we are
headed," said Greenpeace Canada energy strategist Keith Stewart.
(Additional reporting by David Ljunggren in Ottawa; Editing by
David Gregorio and Jonathan Oatis)