A decade ago, fossil investors paid nearly C$2 billion for rights to search for bitumen across 1.5 million hectares of northern Alberta. Now some companies are giving those rights up, convinced they’ll never make any money from them.
“The industry has returned almost one million hectares of northern Alberta exploration leases to the province over the past two years — abandoning an area far bigger than PEI,” the Canadian Press reports, in what could be seen as an early indicator of markets recognizing the reality of the stranded oil problem—fossil assets that sit on company books but cannot be developed in any realistic emissions reduction scenario.
“Observers were surprised by the size of the lease returns,” CP adds, “which they attributed to industry cost-cutting and disinterest in spending to develop new prospects when there’s no money to build projects already on the books.”
“This is good news,” said Greenpeace Canada Senior Energy Strategist Keith Stewart. “It’s a sign that investment dollars are shifting out of carbon-intensive energy.”
It’s far from the only such sign. The province’s 1.5-million-hectare 2006 auction fetched an average price for exploration rights of $1,273 per hectare. Last year, Alberta attracted only $266 per hectare for a mere 44,000 hectares of licences. The number of evaluation wells drilled in the province has fallen from nearly 1,700 in 2014 to fewer than 390 last year. And a parade of international oil majors has walked away from tar sands/oil sands projects, selling off their assets to a dwindling number of Canadian operators.
The abandoned acreages largely represent leases that have run their term, and would cost holders money to either renew or to extend by starting to develop them, CP explains, citing documents provided by Alberta Energy.
“It costs money to maintain these lands,” Brad Hayes, president of Petrel Robertson Consulting in Calgary, told the news agency. “You can’t convince shareholders to continue to put that money out if there’s no prospect for success.”
The surrenders have come from companies both large and small, CP notes, from industry major Canadian Natural Resources Ltd. to smaller tar sands/oil sands company SilverWillow Energy. CNRL, when asked, offered no explanation for its surrender of 46,000 hectares of leases. SilverWillow returned leases it had acquired for $2 million in 2011—representing 80 million barrels of recoverable bitumen—in order to save $50,000 a year in holding costs, the agency reports.