Many hurdles for Frontier mine project
Teck CEO says oil prices, pipeline and partners are crucial factors for proposal
A political brawl has erupted over a pending federal decision on the massive Frontier oilsands mine, but it’s only one of several barriers facing the mega-project.
As Alberta presses the Trudeau government to approve the venture, the proposed Frontier development has other major hurdles to clear before mining giant Teck Resources would make a final investment decision on the $20.6-billion proposal.
“Frontier, (it) is anyone’s guess on what the federal government is going to do,” Teck Resources CEO Don Lindsay said Wednesday at a CIBC Investment conference in Banff.
“We’ve told the government for it to be developed, we need 3 Ps. The first is the (Trans Mountain) pipeline has to be finished, not just started, finished.
“We need a partner. We need price. So we will just wait to see how that unfolds.”
Pipelines, partners and oil prices — three potential pitfalls to a major project in northern Alberta.
Lindsay’s candid remarks provide insight into the company’s longer-term thinking as the Liberal government is expected to decide by the end of February whether to approve the development.
Across the industry and inside the Alberta government, all eyes are now on that decision.
Last July, a joint federal-provincial review panel deemed the project was in the public interest and recommended it move ahead, with a number of conditions.
Cenovus Energy CEO Alex Pourbaix pointed out Thursday that Frontier went through a comprehensive regulatory review and the industry now needs to see certainty on such developments.
“We have to know what are the ground rules and if we meet them, are we going to get our projects approved?” Pourbaix told reporters.
“That’s the risk with that project. You have a proponent that’s been advancing this project for 10 years and it looks to me like they’ve done everything right … If it were not to be approved, that would be a challenge.”
Much of the political debate surrounding Frontier has been centred on its environmental impact, but questions surround its economic viability in a carbon-constrained world and uncertain long-term crude prices.
CIBC World Markets analyst Oscar Cabrera believes the project is low on Teck’s priority list and skeptical it will proceed.
“I believe the likelihood is low, and I think that the feedback the company has been getting from investors on oilsands is not very positive,” he said.
“I don’t think there’s an appetite, at this point at least, to develop the project.”
As planned, the oilsands mining operation would produce up to 260,000 barrels per day and create up to 2,500 operational jobs, as well as billions of dollars in government revenues.
It’s also expected to generate about 4.1 megatonnes of carbon dioxide per year. The Trudeau government wants Canada to achieve net-zero emissions by 2050, although it’s unclear exactly how the country will meet that goal.
Environment Minister Jonathan Wilkinson suggested this week Ottawa’s decision will take into account environmental impacts, economic opportunities and what action Alberta is taking to lower greenhouse gas emissions.
A senior Alberta official believes the federal decision is “literally 50-50, on the knife’s edge.”
Approving the project would send an important signal that major oil projects can be approved in Canada moving forward.
If completed, Frontier would be the first new oilsands mine built in the country since the $17-billion Fort Hills project was opened in 2018 by Suncor Energy and its partners, Total SA and Teck.
Most growth from the oilsands in the coming years is expected to come from expanding existing operations or developing thermal projects, not building large oilsands mining developments.
Kevin Birn, vice-president of North American crude oil markets at IHS Markit, said the break-even price for new oilsands mines sat around US$65 WTI per barrel in 2018, a drop of $20 a barrel from 2014 levels due to industry cost-cutting efforts and greater efficiencies.
But with only one mining project moving ahead — Frontier — it’s hard to know if further savings can be found, given the limited data available.
Mark Oberstoetter of energy consultancy Wood Mackenzie said he’s had doubts greenfield oilsands mining projects would be built, partly because of the lower-cost opportunities to expand existing projects.
A generic, newly built oilsands mining project “would destroy value under most price scenarios,” he said.
“We do believe Teck could find ways to keep pushing costs lower and improve economics,” Oberstoetter said in a statement. “A big hurdle for Frontier will be in attracting partners and outside capital.”
Teck, which has a market capitalization of $10 billion, has indicated it’s looking for partners on the mammoth project.
However, with the exodus of foreign firms from the oilsands in recent years, the potential number of interested parties would be limited.
“If you look at the principal oilsands companies, I’d say they are unlikely to take on a new project outside of what they already have,” said Randy Ollenberger, an analyst with BMO Capital Markets. “It’s a pretty tough environment to find somebody.”
All that doesn’t mean the Vancouver-based company won’t continue to push ahead. Finding a partner will be easier if the project has the necessary federal permits.
“This permit decision and the regulatory approval is a critical milestone,” Teck spokesman Doug Brown said Thursday.
“We have to get through this and see what the outcome of this process is before we can move forward with any other decisions on Frontier.”
In Banff, Lindsay noted very little capital is being devoted to getting the federal permits and the company has already cleared the high regulatory hurdles set by Ottawa.
He touted the project’s environmental standards and noted all 14 Indigenous communities in the area have signed support agreements.
Even if it receives the blessing of the federal government, it’s clear Frontier still has challenges to overcome.
But after getting this far in the process and following all the regulatory rules, it’s time Ottawa gives Frontier the green light — leaving a complex final investment decision in the company’s hands.
(It) is anyone’s guess on what the federal government is going to do.