https://business.financialpost.com/commodities/energy/the-30-billion-exodus-foreign-oil-firms-are-bailing-on-canadas-energy-sector
[The 'smart' money knows that the bitumen bubble is not financially
viable as renewables become lower-cost options than mining, upgrading,
refining and transporting the low-quality hydrocarbon. And that's
before the subsidies start to be removed and carbon pricing starts to
have a real impact. The best argument for leaving the bitumen in the
ground is that there are better and less expensive alternatives
available. The big questions for 2020 and later in Alberta is who is
going to pay to clean up the mess, and how much will it cost?]
The $30-billion exodus: Foreign oil firms keep bailing on Canada's
energy sector
The drumbeat of exits, rare for such a stable oil-producing country,
adds an extra layer of gloom for an industry that accounts for about a
fifth of Canada's exports
Kevin Orland
August 22, 2019 9:03 AM EDT
Capital keeps marching out of Canada’s oil industry, with Kinder Morgan
Inc.’s sale of its remaining holdings in the country on Wednesday adding
to more than US$30 billion of foreign-company divestitures in the past
three years.
Pembina Pipeline Corp., based in Calgary, is snapping up Kinder’s
Canadian assets and a cross-border pipeline in a US$3.3-billion deal.
For Houston-based Kinder, the deal completes an exit from a country that
has frustrated more than a few companies — from ConocoPhillips and Royal
Dutch Shell Plc to Marathon Oil Corp.
The drumbeat of exits, rare for such a stable oil-producing country,
adds an extra layer of gloom for an industry that accounts for about a
fifth of Canada’s exports. The energy sector — centred around Alberta’s
oilsands — has struggled to rebound since the 2014 crash in global oil
prices, with capital spending declining for five straight years and job
cuts pushing the province’s unemployment rate above 6 per cent. Alberta
is forecast to post the slowest growth of any region in Canada this year.
The situation isn’t likely to improve any time soon, with key pipelines
like TC Energy Corp.’s Keystone XL and Enbridge Inc.’s expansion of its
Line 3 conduit bogged down by legal challenges. The lack of pipelines
has weighed on Canadian heavy crude prices for years, sending them to a
record low late in 2018.
“If they thought things were getting better in Canada, they might hold
on, but they don’t see things getting better,” Laura Lau, who helps
manage more than $2 billion (US$1.5 billion) at Brompton Corp. in
Toronto, said in an interview. “The pipeline situation is getting worse;
everything is getting worse.”
Other recent major exits include ConocoPhillips’ US$13.2 billion sale of
its oilsands and natural gas assets to Cenovus Energy Inc. in 2017, and
Shell’s and Marathon’s sales of their stakes in an oil-sands project to
Canadian Natural Resources Ltd. for about US$10.7 billion that same
year. Canadian Natural also bought Oklahoma City-based Devon Energy
Corp.’s Canadian heavy oil assets this year for US$2.79 billion.
Norway’s Equinor ASA pulled out in 2016 after facing pressure at home to
invest in lower-emission projects.
While a government curtailment program has boosted oilsands prices to
more normal levels, the system has prevented companies from investing in
new deposits. What’s more, the oilsands are often viewed by investors as
a higher-cost jurisdiction that produces a lower quality of heavy crude.
Those persistent drags are likely to keep Canadian assets at the top of
international companies’ lists for potential disposal, Lau said.
Kinder Morgan is in many ways the perfect example of the troubles —
including slow-moving regulatory processes, an active environmental
movement, and a variety of inter-provincial squabbles. The company
bought the Trans Mountain pipeline, which carries crude and other
products from Edmonton to a shipping terminal in Vancouver, for about
US$5.6 billion in 2005 in a bid to gain exposure to the oilsands — the
world’s third-largest crude reserves.
But a plan to roughly triple the capacity of the line got bogged down
amid opposition from indigenous groups, environmentalists and British
Columbia’s government. Kinder threatened to scrap the expansion, which
all but forced Prime Minister Justin Trudeau’s government to step in and
buy the entire line for about US$3.45 billion last year.
Bad Signal
“When they sold Trans Mountain, there wasn’t much left, and it was just
a matter of time for them to exit Canada completely,” Lau said. “But
definitely another foreign company exiting Canada doesn’t send a good
signal.”
Not all foreign operators have abandoned Canada. Exxon Mobil Corp. still
has a sizable presence with its controlling stake in Imperial Oil Ltd.,
a $25-billion company. Shell, based in The Hague, still owns a refining
complex and natural gas production in Alberta and British Columbia.
France’s Total SA owns a portion of the Fort Hills mine, and Japanese
and Chinese companies also have oilsands projects.
A potential catalyst for the sector could be the election of a
Conservative government in Canada’s federal election in October, said
Rafi Tahmazian, senior portfolio manager at Canoe Financial. That may
change global investors’ perceptions about the support the industry
would receive from the government.
“The silver lining in this whole process is that Canada owns Canada
again, and we got it pretty cheap,” Tahmazian said in an interview. “Now
the question is can we take advantage of that by allowing ourselves a
more friendly environment for foreign investment?”
--
Darryl McMahon
Freelance Project Manager (sustainable systems)
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