China’s state-owned CNOOC Ltd. has become the latest international investor to signal a pull-back from Alberta’s high-cost, high-carbon bitumen reserves. The company slashed its estimated tar sands/oil sand inventory by more than half last Friday, and took a charge of $1.4 billion on its struggling Long Lake steam-assisted extraction facility.
“CNOOC attributed the $1.4-billion impairment to weak oil prices and operational changes prompted by a fatal explosion last year and a separate pipeline rupture in 2015,” the Globe and Mail reports. The Chinese company “paid $15.1-billion for Nexen in 2012, but [Long Lake] has been hampered by operational problems. Last year, output was curtailed after an explosion tore through a processing unit, killing two workers. A year earlier, a pipeline rupture at the site spilled 31,500 barrels of bitumen emulsion.”
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The plant managed to turn out only 21,000 barrels of synthetic crude a day last year, the Globe notes, “less than a third of its 72,000-barrel-a-day capacity.” CNOOC also slashed its proven reserves as of year-end 2016 to 301 million barrels, a 63% adjustment.
The announcement left the Long Lake facility’s future uncertain. “As at 31 December, 2016,” CNOOC wrote in its filing, “there was no formal recommendation or decision from the business continuity planning work to suggest the future operating plan of Long Lake assets.”
In February, ExxonMobil acknowledged that 3.6 billion barrels of its Alberta tar sands/oil sands reserves would not be produced unless oil prices rise. Days later, ConocoPhillips “debooked” 1.2 billion barrels, just before it sold its remaining bitumen assets to Calgary’s Cenovus Energy Inc.
Citing a U.S. academic, the Globe blames the series of downgrades and departures not on the inherent economics of bitumen extraction from sand, but instead on OPEC, which has been trying to enforce a price-boosting production cut among its members and some other international producers. According to papers written by Amy Myers Jaffe, executive director of energy at the University of California, Davis, pricing Canadian synthetic crude out of the U.S. market has been a top goal for Saudi Arabia, “the OPEC ringleader.”
In a paper for the Calgary-based Canadian Global Affairs Institute, the U.S. academic asserts that “in the long-term game of setting the stage for competition to prevent prolific oil reserves from getting stranded, OPEC has achieved a Round One victory against the Canadian oil sands.”
Myers Jaffe warns that the mainly Canadian companies that have opted to stick with and even expand their positions in the tar sands/oil sands should take the recent exodus of global majors “as a wakeup call that these companies do not anticipate current technology will lower costs sufficiently in the future.”