A string of 2017 transactions within Canada's oil sands confirmed Wood Mackenzie Ltd.'s forecast for oil sands consolidation. WoodMac analysts in February forecast that oil sands will continue to be a stable source of world oil supply.
Two deal announcements followed in March. The deals came after Canadian oil sands producers had been battered by the oil-price slump, prompting the deferral of many oil sands projects.
Canadian Natural Resources Ltd. announced on Mar. 9 that it was acquiring Royal Dutch Shell PLC's 60% interest in the Athabasca Oil Sands Project for $8.5 billion. Concurrently, Shell and CNRL jointly acquired equal shares of Marathon Oil Corp.'s 20% interest in Athabasca for $1.25 billion each. CNRL operates Athabasca with 70% interest. Shell was left with 10% interest and Chevron Corp. 20%.
Shell has an option to swap its 10% mining interest for another 10% interest in the Scotford Upgrader, which Shell operates. The Scotford Upgrader turns bitumen into synthetic crude oil. Shell rearranged its oil sands holdings as part of its previously announced $30 billion corporate divestment program.
Cenovus Energy Inc. on Mar. 29 announced it is acquiring ConocoPhillips' 50% stake in the Foster Creek Christina Lake partnership and Deep basin assets for about $13 billion. The Cenovus-ConocoPhillips transaction marked the biggest Canadian deal since CNOOC Ltd. acquired Nexen Inc. in 2012 (OGJ Online, July 23, 2012).
Production outlook
WoodMac forecasts Cenovus' bitumen production will reach 356,000 b/d this year. Cenovus becomes Canada's largest thermal oil sands producer.
Michael Hebert, WoodMac analyst in Calgary, said, "We therefore are characterizing 2015 to 2017 as the Canadian consolidation period in contrast to the Asian acquisition spree of 2009 to 2013."
Asian companies previously bought interest in Canadian oil sands only to alter their investment planning after having made expensive acquisitions when oil prices were higher, Hebert said.
The Canadian Energy Research Institute issued its "Canadian Oil Sands Supply Costs & Development Projects (2016-36)" in February. CERI publishes its long-term outlook for oil sands production and oil sands supply costs every year.
The outlook lists three production scenarios with all three forcasting growth for the 20-year outlook period. Total oil sands production reached 2.53 million b/d in 2015, which was up 9.6% from 2014 total production.
"In the high-case scenario, production from mining and in situ projects (thermal and cold bitumen) is set to grow to 3.5 million b/d by 2020 and 5.9 million b/d in 2030, peaking at an all-time high of 6.6 million b/d by 2036," CERI said.
"In the low-case scenario, production rises to 3.3 million b/d in 2020, 3.8 million b/d by 2030, and 4.5 million b/d by the end of the forecast period," the report said. "CERI's reference case scenario provides a more plausible view of the oil-sands production. Projected production volume will increase to 3.4 million b/d by 2020 and 4.8 million b/d in 2030, peaking at 5.5 million b/d by 2036."
CERI noted a change in the nature of new oil sands projects.
"Ten years ago, the industry was dominated by megaproject mines and upgraders each built by several thousand people. Since then, the sector has transformed into smaller, more manageable in situ projects."
Oil sands producers must deliberate over the risk of multi-decade operations, which is unlike US tight oil producers who move quickly to buy acreage and climb steep learning curves to economic oil production.
Provincial and federal governments' climate change policies also play a key factor in oil sands development. Alberta has increased its carbon tax and absolute emissions cap.
