Why Big Oil discovered its love of trees
Posted by mhudema on February 26, 2008
February 26, 2008
Everybody loves a no-lose proposition. Some people make a career out of searching for them: the investor who pays $10 for stock in a company with $11 per share of cash in the bank; the acquisitive CEO who buys a struggling competitor, strips out the best asset and sells the rest at a profit. No-lose deals are hard to find, but the shrewd exploit them – and never let it be said that the big oil companies aren’t shrewd.
Big Oil has a big public relations headache. It’s called climate change and, as far as the public is concerned, the major oil sands producers have already been charged and convicted for their role in it. About six in 10 Albertans say that the breakneck expansion of new oil sands mines is harming the planet, according to a recent poll by the Strategic Counsel; an equal number think the province’s economy has been developing too quickly. Remember: This is what the home team says. You can imagine what the Mueslix-eating yuppies in Toronto think.
Oil executives are not dumb. They can see this. They can also see that B.C. just introduced a carbon tax and dread the thought of the feds doing the same. So what better way of greening their image than to call for a halt to new oil sands plays in Athabasca?
Some of the biggest names in the oil patch have done just that. Lining up with the tree huggers at Environment Canada and the Pembina Institute, Petro-Canada, Suncor Energy, Husky Energy and Imperial Oil have backed a partial moratorium on new projects. That’s four of the six largest public energy firms, and there are others, like Shell Canada, alongside them.
If the Alberta government accepts the idea, three vast areas would remain protected, at least until 2011. Score one for the woodland caribou. But what are the oil companies’ motivations? Simply put: This idea costs them little.
Most of the proposed conservation area is of minimal interest to them, at least until oil prices get much higher. “These are places where there’s still bitumen, but it’s very thin and low-grade bitumen,” says the Pembina’s Simon Dyer. Suncor spokesman Brad Bellows says: “They appear to have low resource potential … so there’s an opportunity to set these areas aside.”
Suncor, he adds, has little interest in buying the rights to these regions, and it’s not hard to understand why. The company’s got enough to do, having just approved a $20.6-billion expansion to its oil sands operation north of Fort McMurray. Only about one-tenth of that has been spent. The rest will come between now and 2012. The same could be said for Petro-Canada with its majority stake in Fort Hills, billed as one of the largest undeveloped oil sands projects remaining in Athabasca. Phase one will cost more than $14-billion.
Imperial and Husky also have big projects on the go in the region and others they could take on, if the economics permitted it. Husky’s Sunrise lease claims more than 10 billion barrels of bitumen – the sticky goo is 100 metres thick in some places. But its Saleski lease could be twice as rich.
So all of these companies have got a grip on a scarce, and increasingly valuable, resource. Ask yourself: What are their biggest problems? Aside from the risk of new taxes or stiffer regulations, they have too much to do, not enough workers to do it. Cost inflation is rampant. Meanwhile, new competitors are joining the fray and pushing up wages. Does Petro-Canada really benefit when an operation like Oilsands Quest, which has no production but sports an $800-million market cap, throws money at new leases?
A freeze, even a partial one, would help some of the big players. It would buy them some time, ease a bit of the pressure in the labour market and slow the upstarts. More important, they could cloak themselves in green, useful for beating by their environmentalist critics. (See? Woodland caribou!) The proposed moratorium isn’t very long; it’s not as though any of these new leases are going to be developed between now and Jan. 1, 2011. For them, the downside is limited. (For the big energy companies that oppose the idea, there is a potential cost. One of EnCana’s oil sands plays is on the edge of one of the protected areas; Nexen has been drilling water exploration wells inside one of them.) Mr. Dyer says the likes of Husky and Petro-Canada should not be criticized for wanting to see responsible development in Athabasca, and he’s right. But nor should we confuse their action with self-sacrifice. It’s more like self-interest.