An analyst says a “gold rush mentality” may have been at the root of China National Offshore Oil Corporation (CNOOC) Ltd.’s problems with its troubled Long Lake tar sands/oil sands upgrader, after the company announced it would shut down parts of the northeastern Alberta operation and lay off 350 workers.
“When they bought Nexen in 2012, there was a gold rush mentality and the Chinese were anxious to get in,” Robert Skinner, executive fellow at the University of Calgary’s School of Public Policy told Bloomberg. But now, “they’re losing money left, right and centre,” and “there have been a whole series of whacks against them.”
CNOOC acquired Long Lake as part of a corporate takeover in 2011. But the facility “never reached its production capacity and has been plagued by accidents, including workers’ deaths, explosions, and pipeline spills,” the news agency notes. “The operation experienced cost overruns and underperformance before CNOOC gained complete ownership, when it paid about C$15 billion in 2013 for Nexen Energy.” Bloomberg says the plant’s upgrader has been costly to operate, “can’t be feasibly repaired in the short term,” and will only produce 27,000 barrels per day of diluted bitumen in the next month, “a fraction of the output of larger competitors such as Syncrude, with daily capacity of 350,000 barrels.”
CNOOC’s deal for Nexen in 2011 “coincided with a record volume of acquisitions of Canadian energy assets by Chinese companies,” Bloomberg’s Jeremy van Loon recalls. But CEO Kevin Reinhart later “admitted to investors that Nexen had failed to understand the geology of the bitumen reserves.” Only one-third of the 90 wells the company developed were considered viable, and “if you don’t get the reservoir understanding right, it’s very unlikely you’re going to get your development strategy correct,” Reinhart acknowledged.