Tayvis Dunnahoe
Exploration Editor
Two major US oil and gas companies have revised downward their reserves, reducing 4.65 billion bbl of oil sands crude worth an estimated $183 billion.
ExxonMobil Corp. removed its entire 3.5 billion-bbl Kearl oil sands project from its books on Feb. 22. The major cited that 2016 oil prices and incurred costs had disqualified the Kearl oil assets as proved reserves. ExxonMobil expanded its Kearl oil sands project in 2015 to increase output to reach 110,000 b/d, nearly doubling previous Kearl production.
This move followed ConocoPhillips's Feb. 2 announcement that it had reduced its reserves estimate by 1.6 billion boe, of which 70% (1.15 billion bbl) was anticipated to come from oil sands production. The move shrank the company's proved reserves by more than 20%. ConocoPhillips said the reduction was related to market factors and that 90% of the total reduction came from proved undeveloped reserves under the US Securities and Exchange Commission guidelines.
Proved reserves
SEC rules quantify proved reserves as oil and gas fields that can be produced economically within the next 5 years. Market competitiveness within Alberta's oil sands has been a topic of discussion since oil prices declined in mid-2014 (OGJ Online, Dec. 16, 2015).
With the slight price recovery over the last few months, shale plays in Texas and Oklahoma are again experiencing incremental rises in investments, and this has had an effect on Alberta's oil sands. Raw bitumen extracted from the region is processed and converted to a thick synthetic crude that sells for less than benchmark US crude oil, which settled at $54/bbl as OGJ went to press last week.
Ongoing development
Despite the recent moves by major operators, smaller independents are still active in Canada's oil sands. In December 2016, Athabasca Oil Corp. agreed buy to Statoil Canada Ltd.'s oil sands business for an estimated $832 million (Can.) (OGJ Online, Dec. 15, 2016). Suncor Energy Inc. said in November 2016 that it expected capital spending to reach $4.8-5.2 billion (Can.) in 2017. About 40% of this year's capex program is allocated to the offshore Hebron heavy oil project and its Fort Hills oil sands project. Both are expected to reach first production by yearend (OGJ Online, Nov. 17, 2016). The Fort Hills LP project will produce an estimated 180,000 b/d for 50 years, Suncor said.
For smaller independents, write-downs are common and resource bases change with little consequence. ExxonMobil last adjusted its reserves decrease in 2009, and the company's shares lost more than 4% in a day ($17 billion in market value) at the height of the 2008 global financial crisis. According to Bloomberg, the recent 19% drop is the largest annual cut since the 1999 merger that created ExxonMobil in its modern form.
"Prices to date in 2017 have been higher than the average first-of-month prices in 2016," ExxonMobil said in its 2016 reserves statement, which added that the revisions are not expected to affect the operation of the company's underlying projects or to alter its outlook for future production volumes.
Resources remain
In April 2016, producers reported oil sands projects already under construction that would boost total oil sands output for about 5 years regardless of oil prices (OGJ Online, Apr. 4, 2016). Suncor Chief Executive Officer Steve Williams said at the time, "There are major capital investments in flight that will be completed." New oil sands projects will most likely not be announced until oil prices fully recover and production increases on existing projects have helped offset new project deferrals. Suncor produced 460,000 b/d during 2016 from Alberta's oil sands.
As of 2014, Alberta's proven oil sands reserves were 166 billion bbl. While the industry continues to balance costs of recovery with market prices, Alberta's oil sands remain in the ground.
And with production ongoing, majors such as ConocoPhillips say they "expect to rebook reserves with improving prices."
