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Nick Cunningham

Nick Cunningham

Nick Cunningham is an independent journalist, covering oil and gas, energy and environmental policy, and international politics. He is based in Portland, Oregon. 

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Oil Major: 70% Of Crude Can Be Left In The Ground


Canada’s oil sands are too dirty to be produced, and should probably stay in the ground.

That has long been the sentiment of environmental groups, but it is also gaining acceptance even among some of the largest oil companies in the world. 

“A lot of fossil fuels will have to stay in the ground, coal obviously … but you will also see oil and gas being left in the ground, that is natural,” Statoil’s CEO Eldar Saetre told Reuters in an interview. “At Statoil we are not pursuing certain types of resources, we are not exploring for heavy oil or investing in oilsands. It is really about accessing the most carbon-efficient barrels.”

Meanwhile, Statoil is under pressure at home on another front: its Arctic wells in the Barents Sea have come up dry, capping off a highly disappointing drilling season.

If heavy oil and oil sands are to be left unproduced, then a lot of oil will need to stay in the ground. According to the USGS, about 70 percent of the world’s discovered oil reserves are in the form of heavy oil and bitumen. Much of that comes from Venezuela – one of the last places in the world that an oil company wants to do business in these days – and Canada. Related: WTI Prices Surge On Keystone Spill

Last year, Statoil abandoned Canada’s oil sands, selling off its assets to Athabasca Oil Corp. But Statoil is hardly alone in the exodus. ConocoPhillips unloaded a whopping $13.3 billion of oil sands assets to Cenovus Energy earlier this year. Shell sold off $4.1 billion in oil sands assets to Canadian Natural Resources. Meanwhile, ExxonMobil wrote off 3.5 billion barrels of oil sands from its book in February, admitting that they were unviable in today’s market. French oil giant Total SA decided earlier this year to halt funding for the Fort Hills oil sands project, led by its partner Suncor Energy. Fort Hills is the last major oil sands project to come online that was built from scratch, and it will bring an additional 190,000 bpd of new supply to the market by next year.

To be sure, the overarching motivation for many of these asset sales is one of economics. Expensive oil sands, especially for greenfield projects, no longer make sense when executives are looking to allocate scarce capital. Oil sands projects can last for decades, and can even have relatively low operating costs, but the expense of upfront development is massive.

ConocoPhillips’ CEO said that it would no longer invest in any oil project that needs a breakeven price of $50 or higher, according to the FT. Conoco’s CEO Ryan Lance said that much of the company’s new investment will be directed into U.S. shale. “You don’t even get through the door unless you are below $50 cost of supply, and you don’t really get to the table in the capital allocation fight unless you are $40 a barrel or below,” he said.

The economics of shale remain questionable – the bulk of the shale industry has racked up debt and posted very little profit. The unique feature that shale has, however, is that it takes very little time to drill a shale well and bring it online. Oil sands, on the other hand, take years. “You need to have a large part of your capital programme that’s flexible in a given year or two, to deal with volatility in the [oil] price,” Conoco’s Lance said, according to the FT.

The exodus of the oil majors from Canada does not mean that oil sands production is heading down. Far from it. The IEA sees Canadian output jumping by 900,000 bpd by 2022, putting production well above 5 million barrels per day (although that depends on sorting out pipeline issues, a pesky problem for Canada’s oil sands industry). Related: Is Texas Poised For A Sharp Rise In Output?

Nevertheless, it does highlight the growing pressure on the industry to reduce its exposure to long-lived, carbon-heavy projects. The proposal from Norway’s sovereign wealth fund to divest from oil and gas stocks is a clear sign that investors are becoming more and more concerned about their long-term exposure to oil assets, particularly those with a high-emissions profile.

For Statoil, which is partly owned by the Norwegian government, the message is clear. A future of carbon constraints essentially means new oil sands will be off limits. “Investment sentiment towards carbon is starting to harden and it does need to be part of the decision making,” Tom Ellacott, senior analyst at consultancy Wood Mackenzie, told Reuters. “There is an economic perspective as well with the risk of future carbon taxes which you are more likely to be impacted by if you have a carbon-intensive portfolio,” Ellacott said.


By Nick Cunningham of Oilprice.com

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  • Kr55 on November 24 2017 said:
    It's funny that we are all going to find out day that the last great oil resource is going to end up being the oil sands as all the easy to extract oil runs dry over the next 40-50 years. There will always be a need for oil, thousands of products use it, and the oil sands are one of the only consistently extractable and arguably infinite resources the world has.
  • Dan on November 24 2017 said:
    Goodness, I was shopping in a U.S./ Canadian border city today and half the cars were from Canada. This is NOT what they want to hear. Well, they still have Fosters Beer don't they? And, and? That's it.
  • Joe on November 24 2017 said:
    Interesting to see Statoil leave Canada and then tell the world how to live their lives. Canadian Natural and Cenovus will do quite well, having purchased properties from other companies at the bottom of the market. Adieu Statoil!
  • Peter on November 24 2017 said:
    Hypocrites! Statoil's and Norway's wealth was built on fossil fuels. Now that they are wealthy they are biting the hand that feeds it.
  • Citizen Oil on November 25 2017 said:
    The Norwegians are talking out both sides of their mouth. Their wealth is largely due to oil and gas. Lets make it perfectly clear the only reason they want out of "investing" in oil is because if you're caught in a downtrend your investments will dive by 80%. This is the reason, not anything to do with ethics or morality. 75% of oil and gas producers are not worth investing in. They are only a trade and a difficult trade to time right.
  • Daniel on November 25 2017 said:
    Well, it is the end of financial year. The guy has to face board member' question ' Why you sold our oilsand project when it was $30, John? Now it is almost $60!'. By the way, State oil transfered it's oilsand project into ATH shares. Now they are the biggest ATH stake holder.
  • Lee James on November 26 2017 said:
    The oil companies are once again mostly guided by free cash flow potential -- the "tough oils' of oil sands and in deep water often do not make the cut.

    Next, the article mentions carbon constraints. This is the rest of the cost for being in the petroleum supply business. The direct costs of extraction plus the indirect cost associated with pollution will encourage developing alternatives to burning fossil fuel.
  • Hockeymonkey on November 26 2017 said:
    Oil fund managers and politicians does not have the same view on the subject, this is as well about politicians making their mark. From the central banks point of view it is about not keeping all the eggs in the same basket. The percentage invested in oil has increased, and now they discuss if it should be balanced. The fund is as you are aware of quite large and should be diversified. This has very little to do with the Norwegians, but I understand that you point your fingers on our politicians. Norwegians does not benefit that much from all cash stacked up in a fund, they pay 50% income tax, 25% VAT, highest taxes on fossil fueled cars and fuel itself, and support economically an enormous list of countries every year.
    Norway will be invested in Oil and are invested in oil for the future, now the fund will be balanced, as it is a little out of course. The media cry out i about individuals already in the media, not the average Norwegian taxpayer.
  • Oillie on November 26 2017 said:
    As soon as prices climb consistently over $70 for Brent they will be back in the oil sands... It is easy to act altruistic when there is nothing to gain.
  • Kim on November 26 2017 said:
    You know Saudis are running out of oil when they invest in Russia instead of Saudi Arabia.
  • Ronald C Wagner on November 26 2017 said:
    Natural gas can fuel any engine with simple modifications that are tried and true. It should be the preferred fuel for all engines. In twenty years it probably will be. China may be the largest user of NG tech. It is far cleaner , more abundant and cheaper.
  • Sandy Lawrence on November 27 2017 said:
    In 20 years many of those vehicles are going to be EVs, like the one that I have charging mainly with solar panels at home + driving for over 4 years.
  • Jill James on November 28 2017 said:
    Who cares what Statoil or Norway thinks or does. This country of a few million people (fewer people than Toronto), where unproductive Muslim immigrants are making up a larger and larger proportion of the population, has never mattered much in global trends. Not sure why Oilprice is suggesting otherwise. Shell and others sold out at pennies on the dollar to Canadian companies who will benefit greatly when oil prices stabilize in the $60-$70 range.
  • Bill Simpson on November 28 2017 said:
    If you want to experience 'The Great Depression II' it can stay in the ground.
    Reducing oil output by even 5%, for more than 6 months, will collapse the world economy, which contains record levels of debt almost everywhere. Start defaulting on it, and the entire debt pyramid will collapse.
    Fortunately, advances in horizontal drilling and fracking has pushed that day a decade or more into the future.
  • Scott Drysdale on December 02 2017 said:
    Conoco Phillips Canadian operations was so politicized that several Canadian Engineering firms backed out...mid project...losing money.....Just so as to escape the certain suicide mission results....One engineering partner called Conoco Phillips a computer virus that disrupted their entire business operation for nearly 7 months......good riddance...

    Engineering and politics does not work well together....ever!

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