|
COST pays the cost Oil sands trust writes down C$148M of High Arctic gas purchase, conceding it’s been overtaken by shale gas, delays in other Arctic projects Gary Park For Petroleum News
A long-shot bet by one of Alberta’s biggest oil sands producers to lock up natural gas resources in the farthest reaches of the Canadian Arctic has turned sour.
In 2006, Canadian Oil Sands Trust emerged victorious from a heated bidding contest for Canada Southern Petroleum, whose primary asset was about 1 trillion cubic feet of High Arctic natural gas discoveries.
COST, hopeful that the Mackenzie Gas Project might proceed and serve as a stepping stone to develop those discoveries and anxious to secure gas as a hedge against its long-term oil sands needs, paid C$198 million for little-known Canada Southern.
Now, less than four years later, it has been forced to write off C$148 million of that purchase.
COST Chief Executive Officer Marcel Coutu conceded in a news release that the emergence of shale gas and stalled progress on Arctic projects have extended the assumed timetable for development of gas that is well beyond the geographical limits of the Mackenzie Gas Project.
The Canada Southern holdings covered 184 square miles, embracing seven Significant Discovery Licenses, one Production License and an estimated 927 billion cubic feet equivalent of marketable gas and 13.7 billion cubic feet equivalent of proved and probable reserves.
Operator now an unknown It was thought at the time of purchase that Petro-Canada, also a major player in the Arctic Islands, was the logical choice to operate any commercial venture, but that, too, is an unknown following Suncor Energy’s takeover of Petro-Canada.
COST, the biggest shareholder in the Syncrude Canada oil sands consortium — the world’s largest producer of synthetic crude — took the Arctic plunge in the hopes of securing 25 years’ worth of gas production to fuel its 36.74 percent stake in Syncrude Canada, using the Arctic gas as a price hedge.
The writedown contributed to a drop in COST’s fourth-quarter earnings to C$96 million, or C20 cents a share, from C$124 million, or C26 cents a share, a year earlier.
COST said it expects production this quarter will be “impacted by unplanned outages” at the Syncrude upgrader, but is counting on those lost volumes being recaptured later in 2010.
The upgrader work includes plans to advance work on modifying the upgrader to break down bitumen by adding hydrogen in the presence of a catalyst to produce a cracked light gas oil.
2010 production to rise The trust has forecast Syncrude’s 2010 production will be about 315,000 barrels per day, giving it a net 116,000 bpd, compared with 103,000 bpd in 2009 and 106,000 bpd in 2008. Final-quarter output last year was 327,000 bpd, up 19,000 bpd from the same quarter of 2008.
Syncrude sold synthetic crude in the fourth quarter for an average C$78.67 per barrel, up from C$69.40 a year earlier, but the annual average dropped to C$69.47 from C$106.91 in 2008. Operating costs for the final quarter were C$30.18 per barrel, down from C$32.10, and C$35.29 for all of 2009 compared with C$35.26 per barrel in 2008.
Coutu said that although 2009 production was 12 percent short of guidance, “we once again demonstrated that the plant can run at robust rates,” given the December output of 360,000 bpd.
“Syncrude’s priority is to improve operational reliability to achieve design capacity rates more consistently,” he said.
The other partners in Syncrude are Imperial Oil 25 percent, Suncor 12 percent, ConocoPhillips 9.03 percent, Nexen 7.23 percent, Murphy Oil 5 percent and Mocal Energy 5 percent.
|
