Statoil’s exit is the starkest sign yet Canada’s oilsands resource has lost its lustre

Statoil’s exit is the starkest sign yet Canada’s oilsands resource has lost its lustre
Not long ago, Norways Statoil ASA was going to build a $10 billion oilsands project in Alberta, put its reputation on the line to defend the deposits in its home country against a smear campaign led by Greenpeace, and even contemplated a massive upgrader near Edmonton.

It all came to a halt late Wednesday when Statoil sold out of the oilsands altogether at a loss, leaving it with no operated assets in Western Canada.

Its the starkest sign yet that the oilsands have lost their lustre against other global opportunities, particularly tight oil. Sure, the oil price crash had a lot to do with it. But a decade of climate change policy uncertainty and anti-oilsands campaigns didnt help.

Paul Fulton, president of Statoils Canadian affiliate, said the Norwegian state-controlled giant wanted to optimize its portfolio to focus on new core assets in places like Norway, the United States and Brazil.

The company also highlighted offshore Newfoundland as one of its core activities globally. Statoil discovered Bay du Nord in the Flemish Pass Basin in 2013 and is continuing to assess its commercial potential.

Statoil entered the oilsands in 2007 when it bought North American Oil Sands Corp., a private developer, for $2.2 billion.

We signed on to this because we believe there is an environment to undertake investments in Alberta, senior executive Peder Sortland said at the time in Calgary as the company announced the deal. In 2011, a subsidiary of Thailand energy giant PTT Exploration and Production PLC bought a 40 per cent stake in the project,and then in 2014 the two companies divided the asset intotheir respective interests.

Nine years later, Stavanger-based Statoil accepted an unsolicited offer from Athabasca Oil Corp. worth up to $832 million. The deal includes $435 million in cash, 100 million common shares of Athabasca worth $147 million, and up to $250 million in a series of contingent payments triggered at U.S. crude prices above $65 a barrel.

Statoil said the divestment triggers an impairment of US$500-550 million.

The energy market has changed since (2007) quite considerably, and the oil price has been a lot lower for longer, we are focused on spending capital on core assets, and our own portfolio has changed in that time, Fulton said.

In the oilsands, we have been able to bring costs down, operate very safely with high efficiency, so the asset is running very well, but we received this offer unsolicited by Athabasca and we needed to take it to optimize our portfolio globally, he said.

The transaction involves the 24,000 barrel a day Leismer oilsands plant in northern Alberta, the undeveloped Corner oilsands project and a number of midstream contracts associated with Leismer production.

Some 220 staff are affected. Statoil said many would move with the projects to Athabasca. The company, which is 67 per cent owned by the government of Norway, will keep its Canadian head office in Calgary, where it will house an exploration team focused on discoveries in the East Coast.

Statoil staff had made a valiant effort to defend the oilsands from a backlash at home. At one point, they hosted weekly tours to its in-situ projects for Norwegians from all corners of society, including environmentalists, politicians, bureaucrats, media, analysts, and company employees.

The oil price downturn of the last two years accelerated an exodus from Alberta by many global players.

In addition to Statoil, they include Total SA from France, ConocoPhillips and Chevron Corp. from the U.S., BP PLC from the U.K., Repsol SA from Spain.

According to Evaluate Energy, there were 42 deals worth at least $9.4 billion in recent years involving foreign company divestments from Canadian oil.

Fulton didnt blame the divestment on Canadas lack of pipeline capacity, or even the coming carbon tax and the cap on oilsands emissions, both meant to appease the environmental lobby.

He said Statoil supports a global carbon price, including here in Canada. Statoils plans at one point involved integrating carbon capture and storage to its oil sands operation.

But the exit speaks volumes. In the end, its all about whether the Alberta deposits are competitive, and clearly, burdened as they are with extra costs and regulations, they arent making the cut.
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