Moody's: Kyoto ratification to have limited effect on Alberta oil sands

Nov. 3, 2003
Canada's ratification of the Kyoto Protocol on Climate Change is expected to have minimal effect on the development of Alberta's oil sands resources, the New York-based Moody's Investors Service said.

By OGJ editors
HOUSTON, Nov. 3 -- Canada's ratification of the Kyoto Protocol on Climate Change is expected to have minimal effect on the development of Alberta's oil sands resources, the New York-based Moody's Investors Service said.

Since the protocol's ratification late last year, the Canadian government has assured oil and gas companies that industrial greenhouse gas emitters will not be responsible for emission reductions beyond those already outlined (OGJ Online, Dec. 18, 2002).

That assurance caps reduction targets and the cost of emissions credits at a management level, lawmakers said.

In a report issued Oct. 16, Moody's said the credit ratings of numerous oil and gas companies having oil sands development should not be affected by the ratification.

The Kyoto implementation will result in incremental costs from developing lower emission technologies, buying emission credits, and possibly from additional environmental measures.

Moody's surveyed several oil sands operations and concluded that additional costs related to Kyoto implementation generally ranged 5-30¢/bbl (Can.) with a few companies expecting costs as high as $3/bbl. The high estimates were driven almost entirely by uncertainly relating to certain key assumptions, Moody's said.

"The impact of Kyoto will be different for each individual project depending on the extraction method being used and the amount of processing being done," said John Cassidy, Moody's vice-president and senior credit officer. "But overall, this doesn't appear to represent a significant increase in costs."

Moody's believes the Canadian government realizes the importance of oil sands operations and is willing to work with the oil and gas industry regarding the Kyoto implementation.

Although Kyoto alone is unlikely to result in material increases in oil sand costs, other factors could impact credit ratings going forward, Moody's said. These include: project cost overruns, operating cost control, possible price discounts needs to place significant incremental production that is being planned, and environmental issues other than greenhouse emissions.