CALGARY – Five months after green-lighting a new oilsands project, Imperial Oil Ltd. has reversed course and is slowing construction work on the $2.6-billion Aspen development as new oil production growth stagnates.
“This was a difficult choice in light of our final investment decision on Aspen announced in November,” Imperial president and CEO Rich Kruger said in a release Friday. “However, we cannot invest billions of dollars on behalf of our shareholders given the uncertainty in the current business environment.”
Imperial announced it would take an extra year to build its Aspen oilsands plant, a 75,000-barrels-per-day project using new technology to draw oil from the oilsands, as it slows the pace of development amid “industry competitiveness challenges.”
The decision will have a detrimental effect on overall levels of oil production growth in Canada, which the International Energy Agency said has “significantly deteriorated” this week.
The IEA published its annual oil market outlook earlier this week and had specifically described the Aspen project as “the exception” to trend of Canadian companies being hesitant to start work on new projects.
The report noted that Canadian oil supply will rise by only 300,000 bpd over the next five years to hit 5.5 million bpd, but that outlook could be too rosy as analysts believe other companies will also slow the pace of development at their under-construction projects.
National Bank Financial analyst Travis Wood said there were “additional timing risk to near-term projects” like Cenovus Energy Inc.’s Christina Lake expansion, Canadian Natural Resources Ltd.’s Kirby North project and CNOOC Ltd.’s Long Lake expansion.
While many companies in the Calgary oilpatch have pointed to uncertainty around new pipeline development as a reason for lower capital spending this year, Imperial specified the Alberta government’s order forcing producers to curtail their output beginning in January.
Imperial’s press release from Friday specifically notes the curtailment order “sends a negative message to investors about doing business in Alberta and Canada” and adds the company is concerned about the “unintended consequences” of the order.
In response to record-setting discounts for Western Canada Select heavy oil blends, Alberta Premier Rachel Notley announced in December that oil producers in the province would need to cut back their output by roughly 10 per cent in a bid to lift prices.
Discounted prices for Canadian oil affect the province’s royalty payments and Notley cited the need to protect the treasury and, by extension, Albertans whom she called the “owners” of the oil in the province in announcing the curtailment order. She has since eased the curtailment order in small increments.
“We’re in regular communication with Imperial on a number of industry issues and this decision is not surprising,” said Mike McKinnon, spokesperson for Alberta Energy Minister Marg McCuaig-Boyd.
McKinnon pointed to the federal government’s regulatory overhaul for new pipelines, rather than the curtailment order, for the decline in energy investment in the province. “We’re disappointed with Ottawa’s regulatory uncertainty and the pipeline delays that are strangling Alberta’s oil and gas sector.”
Investment in the Canadian energy sector has been cut in half since 2014, according to data from ARC Energy Research Institute.
ARC data shows companies invested $33.9 billion in oilsands development in 2014 but the amount of money producers have been willing to put back to work in the heavy oil formation fell 63 per cent to $12.5 billion in 2018 and is expected to fall further, to $12 billion, over the course of 2019.
Imperial spokesperson Lisa Schmidt declined to say how the slower pace of development at Aspen would affect Imperial’s total capital spending for the year, saying the company would update the market on its next quarterly earnings call.
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