Yedlin: Statoil s exit from Alberta reinforces cost challenges of oilsands
|calgaryherald.com 15 Dec 2016 at 19:05|
Statoil is following through on its October promise to cut capital expenses after posting a surprise US$432 million third-quarter loss.
One of the first dominoes to fall was revealed Wednesday when the Norwegian company announced the sale of its oilsands assets to Athabasca Oil Corp. for $832 million in a cash and shares transaction. It’s also taking a US$500 million writedown.
Under the deal, which works out to a bargain $24,000 per flowing barrel of oil equivalent, Statoil will have a 20 per cent stake in Athabasca.
Statoil spent $2.2 billion to buy North American Oil Sands in an all-cash deal back in 2007. The valuation at the time represented the standard $1/barrel valuation for oilsands plays.
Statoil sold a 40 per cent stake to Thailand’s national oil company, PTT Exploration and Production PLC, for $2.3 billion in 2010.
PTTEP was seen as having money to spend, but the deal didn’t necessarily indicate the two companies were aligned in terms of long-term objectives. It therefore wasn’t much of a surprise when the two companies parted ways in 2014 through an asset swap that also saw Statoil pay PTTEP US$200 million.
Some observers said it was only a matter of time before Statoil completely sold out of the oilsands.
Much was made of the 2007 deal since it allowed Statoil to secure a long-term production source in a politically stable region. It was also an asset with long-life reserves and little geological risk, even if it wasn’t considered ‘beach front’ property.
This week’s deal turns that reasoning upside down.
In an interview Thursday, the company’s Canada chair, Paul Fulton, said the sale to Athabasca was the result of a capital reallocation process at Statoil that will see dollars invested elsewhere.
It is a real-time example of the axiom repeated often by Alberta business leaders in recent years — capital goes to where it can get the best return.
International oil companies like Statoil have opportunities to deploy their dollars around the world. Fulton, for example, talked about the company’s ability to invest in U.S. shale — Statoil is already active in the Eagle Ford, Marcellus and Williston Basin — and offshore Brazil or Norway.
While the Brazilian fields are not cheap to develop and the associated time lines won’t be short, that option makes sense since Statoil, at its foundation, is an offshore, light oil producer. Its core competencies are not in heavy oil or oil sands plays.
And while the company is leaving Alberta, it remains active offshore Newfoundland, having discovered the Bay du Nord play and the Flemish Pass Basin.
As for shale, that also shouldn’t surprise.
Shale plays are huge consumers of capital, but those dollars aren’t at risk for long periods compared with the oilsands. The relative ease with which these wells can be drilled and put into production are diametrically opposed to the time and complexity needed to wring maximum returns from oilsands assets.
“The primary reason (for selling out of the oilsands) had to do with the physics of the asset. There is a limit to how low the operating costs can go and to make it more economic we would have had to make a big investment,” said Fulton.
He was clear the decision had nothing to do with the impending carbon price taking effect next month, or the lack of access to new markets.
Bob Skinner, an executive fellow at the University of Calgary’s School of Public Policy, was instrumental in bringing both Statoil and France’s Total S.A. into the oilsands. He pointed out Thursday that Statoil operates in the ‘floodlights’ of the Norwegian parliament, and there’s little doubt the twin issues of climate change and carbon were factors in this week’s decision.
“The environmental debate is front and centre in Norway. They see themselves as being major supporters of the international climate policy development,” said Skinner.
That, and the fact Statoil pays dividends to the Norwegian government. Without further investment, significant scale and sustainably higher oil prices it was going to be challenging to boost returns, which reinforces another sentiment regarding the competitiveness of Canada’s oilpatch.
This remains a high-cost basin, at the end of a pipe and still lacking access to new markets.
That the price differential between West Texas Intermediate and Western Canada Select is the widest it’s been since February 2015 says it all. A company has to be really good at the oilsands game to make money, and if it isn’t there is no point in staying.
Statoil’s departure will see it withdraw from the Canadian Oil Sands Innovation Alliance (COSIA). Known for its commitment to research and development, Statoil was one of the 13 original signatories to the charter that established the organization, which is focused on the sharing of technologies and collaborating on innovation.
It remains to be seen what Athabasca’s commitment to COSIA will look like.
Wednesday’s news also reignited speculation as to how long it will be before Total follows Statoil’s lead.
A logical buyer, if that were to happen, would be Suncor, which raised $2.9 billion in the equity markets last June, ostensibly to pay down debt.
However, buying out Total’s remaining 29.2 per cent stake in the Fort Hills project — the valuation metric was set when Suncor bought 10 per cent from Total for $310 million in September 2015 — makes sense.
Fewer partners makes for a smoother decision-making process and some analysts say Total has all but thrown up the white flag in terms of its desire to stay active in the oilsands.
Suffice to say, Statoil’s decision reinforces a new tone in the oilsands world; one of restraint and capital discipline and the real challenges of remaining competitive.
Even with a strong recovery in the oil price, it’s a safe bet the roster of companies active in the oilsands 12 months from now will look much different.
Deborah Yedlin is a Calgary Herald columnist