Oilsands hammer reserves of world’s top explorers
Oilsands i nvestments in Western Canada that gobbled tens of billions of dollars over the past decade are proving an Achilles heel for some of the world’s biggest energy producers.
Exxon Mobil Corp. slashed proved reserves the most in its modern history after removing the entire US$ 16 billion, 3.5- billionbarrel Kearl oilsands project from its books on Wednesday. That followed ConocoPhillips’ announcement a day earlier that erased 1.15 billion oilsands barrels, plunging its reserves to a 15-year low.
While prolific shale plays in Texas and Oklahoma are going through an investment boom with oil above US$ 50 a barrel, the oilsands have fallen out of favour. Current investments in the region amount mostly to l ongplanned expansions by large Canadian producers l i ke Suncor Energy Inc., while majors like Statoil ASA have sold assets. Suncor, which took over Canadian Oil Sands Ltd. less than a year ago, is down more than three per cent this year in Toronto.
The oilsands operations in northern Alberta are among the costliest types of petroleum projects to develop because the raw bitumen extracted from the region must be processed and converted to a thick, synthetic crude oil. In addition, Canadian crude sells for less than benchmark U. S. crude because of the added cost to ship it to American refineries. That’s why the oilsands have been particularly hard hit by the worst oil slump in a generation.
The combined 4.65 billion barrels of oilsands crude removed from Exxon’s and Conoco’s books are worth US$183 billion, based on current prices for the Western Canada Select benchmark. The revisions hit as both U.S. companies, along with the rest of the oil industry, strove to recover from a 21/2- year market slump that collapsed cash flows, wiped out hundreds of thousands of jobs and prompted many explorers to cancel their most ambitious drilling programs.
Under U. S. Securities and Exchange Commission rules, proved reserves can only include oil and gas fields that can be produced economic- ally within the next half decade. Price trends from the previous 12 months are compared against the estimated cost to harvest crude and gas in determining which reserves are counted.
The revisions of what qualifies as proved reserves are not expected to affect the operation of the underlying projects or to alter the company’s outlook for future production volumes, Exxon said.
Exxon’s 19 per cent cut to global proved reserves amounted to the largest annual revision since at least the 1999 merger that created the company in its modern form, according to data compiled by Bloomberg. That included 1.5 billion barrels of reserves that were pumped from wells across the globe. The previous record cut was a three per cent reduction taken during the height of the global financial crisis in 2008.
ConocoPhillips on Tuesday shrank proved reserves by more than one-fifth, the majority of it stemming from its de-booking of oilsands crude.
Exxon, facing an SEC probe into how it valued its portfolio, signalled in October and again last month that the revision was probably coming.