Shell walks away from oilsands project
Work on Carmon Creek drilling project halted
CALGARY Royal Dutch Shell Plc made its second major strategic change in as many months, announcing it will take a $2-billion charge as it shelves an oilsands project in Alberta after walking away from an Arctic drilling program.
Shell is halting work on the 80,000 barrel-a-day Carmon Creek drilling development after deciding the project couldn’t compete in its portfolio, the company said in a statement Tuesday. The charge will be recorded in third-quarter earnings results, which are due to be released Thursday.
Energy producers are cancelling or delaying projects as a crude price slump forces them to prioritize spending. The company last month abandoned drilling offshore Alaska indefinitely after it failed to find enough oil or gas in the Chukchi Sea. Earlier this year, Shell withdrew an application to develop the Pierre River oilsands mine in northern Alberta.
“We are making changes to Shell’s portfolio mix by reviewing our longer-term upstream options worldwide, and managing affordability and exposure in the current world of lower oil prices,” said CEO Ben van Beurden. “This is forcing tough choices at Shell.”
Shell joins Suncor Energy Inc., and Cenovus Energy Inc., in deferring investment this year in the oilsands, one of the most expensive places to extract crude. The decision reflects uncertainties including the lack of transportation infrastructure to move Canadian crude to global markets, Shell said. All four proposals for new large-scale oil pipelines to ship Alberta crude to the continent’s coasts have been delayed by environmental opposition and regulatory scrutiny, including the Keystone XL line that’s in its eighth year of U.S. review.
“With this new Shell announcement, 18 future oilsands announcements have been delayed this year,” Jackie Forrest, vicepresident of Calgary-based ARC Financial Corp., said. “Many of the other ones were not as expensive to cancel because not as much had been spent on them.”
Oilsands projects were struggling to compete against lowercost U.S. shale and offshore developments even before the price of crude plunged. Total SA shelved a $11-billion plan to build the 160,000 barrel-a-day Joslyn mine in May 2014, citing high costs.
It’s getting tougher for the world’s third-largest reserves in Canada to attract investment with prices for West Texas Intermediate and Brent crudes both hovering below US$50 a barrel. Non-producing oilsands projects require a Brent price of US$80 to be profitable, the highest of any major upstream sector, states a Rystad Energy AS analysis released earlier this month. Offshore fields, including in the Middle East, Brazil and Norway, are among the cheapest to develop, says the oil and gas consultant.