Is Koch Industries Set To Join The Oil Sands Exodus?

Koch industries Inc. has become the latest in a long line of companies to move away from the Canadian oil sands, stating that it wants to pull out of a project in the Muskwa region. Previously the third largest leaseholder in the sector, Koch Industries cited both economic and regulatory uncertainties as the reason behind its decision.

It has been a particularly tough year for Canada’s oil sands, struggling through the oil price crash, witnessing severe disruption due to the Alberta wildfires, and coming under intense scrutiny from environmentalists – most notable Leonardo DiCaprio in his recent climate change documentary “Before The Flood”.

Justin Trudeau’s government rubbed salt into the oil sands’ wound earlier this month, announcing a deal to introduce its first federal carbon tax. Critics have claimed that this decision is bound to make the country less attractive to investors, an argument that is gaining traction following Statoil’s recent decision to sell its Kai Kos Dehseh assets and now this latest news from Koch Industries Inc.

That being said, the mass exodus from Canada’s oil sands was underway well before Trudeau’s carbon taxation was announced, with Royal Dutch Shell pulling the plug on its Carmon Creek project last year and Exxon Mobil writing down 3.6 billion barrels from the Kearl oil sands project in October. Regardless of the environmental impact, the high capital investment required and the low quality of oil produced makes the oil sands an economically challenging sector. With increasing regulatory uncertainty and pressure from environmental groups, the likelihood of more project sales and cancellations remains high.

While the oil market is showing signs of a recovery, with WTI and Brent now comfortable beyond $50, there is still a long way to go for Canada’s oil sands. It was perhaps put most aptly by Oilprice.com’s David Yager, when he wrote that while recovery is in sight, “we must swim across a lake with one arm tied behind our back, wearing ski boots and insulated coveralls” to get there.

By Charles Kennedy of Oilprice.com

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