News
12/10/26
Oil sands producers prime the pump for pending boom
Oil sands producers prime the pump for pending boom
Calgary, 12 October (Argus) — Two leading Canadian energy companies last week
made more bold, strategic changes in favour of core oil sands operations as new
federal energy policy becomes clearer. The asset shuffle comes in anticipation
of a potential increase in upstream development to a level not seen for over a
decade, with operators focused more on long-term legislative support than
current high oil prices. Cenovus Energy signed a C$5.7bn ($4bn) deal to acquire
smaller rival Athabasca Oil , less than two years after swallowing MEG Energy
for C$8.6bn. The deal is "strategically sound", even though Cenovus is paying
full value and it may not provide immediate gratification for investors, bank
RBC Capital Markets says. "Athabasca is like an oil sands unicorn — one of the
last remaining (mostly) pure-play public oil sands producers," it says. "Cenovus
recognises this scarcity." Athabasca brings 40,000 b/d of production, but more
importantly it offers over 75 years of oil reserves near existing Cenovus
assets. The buyer says it could nearly triple Athabasca's output to 115,000 b/d
by 2032, which is also the earliest that Canada's planned 1mn b/d Pacific Link
pipeline to the west coast could enter service. Included in future plans is
Athabasca's undeveloped Corner asset, which could become the first greenfield
oil sands project to be realised since 2013. Suncor Energy, meanwhile, has
cashed out of some interests offshore Atlantic Canada for C$1.2bn to UK
independent Ithaca Energy, as it restructures its balance sheet to focus on oil
sands operations. Suncor has regulatory approval to produce 160,000 b/d of
bitumen at its proposed Lewis project near Fort McMurray, Alberta. The company
this year also applied to increase the capacity of its Firebag steam-assisted
gravity drainage project to 700,000 b/d from 331,500 b/d. The strategic moves by
Cenovus and Suncor come just days after Canadian prime minister Mark Carney
deemed Pacific Link a project of national interest, ensuring its application
receives fast-track treatment by the federal Major Projects Office. Giving
Alberta's energy industry further reason for optimism is pending legislation
such as the Building Canada Strong Act, or Bill C-39. This will overhaul the
federal regulatory process, and in turn give prospective project developers more
certainty and a sign Ottawa is listening. And Canada's proposed Productivity
Mega Deduction — which would allow firms to immediately depreciate spending on
large capital projects — has drawn plaudits from the industry. Pieces falling
into place These pending changes to the federal fiscal framework for oil sands
operators are "not immaterial", Cenovus chief executive Jon McKenzie said while
announcing the Athabasca deal. He also expects to soon see new growth incentives
relating to Alberta's royalty structure. "All of that fits together to draw
capital back into the resource... and probably accelerate growth," McKenzie
said. Enbridge, Canada's largest pipeline company, also gave Ottawa credit for
encouraging private-sector investment by lightening the regulatory burdens his
industry has endured for years. "These reforms send an important signal: Canada
is now serious about getting projects built again," chief executive Greg Ebel
said. Enbridge sank $600mn into the proposed Northern Gateway pipeline before
Ottawa ultimately rejected it in 2016. Carney said his government is now
signalling its interest in major projects earlier, so investors have more
clarity. The Alberta Energy Regulator sees a steady climb in the province's
capital expenditure over the next decade to C$40.9bn by 2035, up by 29pc from
C$31.8bn in 2025 — the latter already a 10-year high. Like their US
counterparts, oil sands operators remain cautious with their capital
expenditure, despite this year's higher profits and cash flow, according to a
Deloitte report released on 8 October. By Brett Holmes Capital expenditures in
Alberta C$bn Oil sands Oil and gas Total 2015 22.9 16.3 39.2 2020 7.3 8.5 15.8
2025* 14.7 17.1 31.8 2030* 17.8 20.2 38.0 2035* 18.2 22.7 40.9 * estimates —
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