Imperial Oil green lights $2.6 billion Aspen oil sands project

aspen oil sands
On Tuesday, Imperial Oil announced it is going ahead with its $2.6 billion Aspen oil sands project.  Construction on the SAGD project is expected to begin before the end of the year.  CP photo by Larry MacDougal. 

On Tuesday, Imperial Oil announced it is going ahead with its $2.6 billion Aspen oil sands project.  Construction on the SAGD project is expected to begin before the end of the year.  CP photo by Larry MacDougal. 

Aspen oil sands projected output at 75,000 b/d, Teck’s Frontier mine will produce 170,000 b/d in first phase

Imperial Oil says it will begin construction of its $2.6 billion Aspen oil sands project before the end of the new year.  First oil from the SAGD project is expected to be produced in 2022.

According to the Calgary-based company, Aspen will use solvents and steam to produce 75,000 barrels per day (b/d) and will employ new technology to cut emissions as well as water use, making extraction more economical.

The new technology is estimated to reduce greenhouse gas emissions intensity and water use intensity by up to 25 per cent compared with traditional steam-assisted technology. Imperial anticipates that Aspen’s emissions-intensity will be one of the lowest among in situ oil sands operations across the industry, the company said in a press release.

“We are accelerating the pace of our innovation and applying technologies with the goal of delivering industry-leading environmental and economic performance,” said Rich Kruger, Imperial chairman, president and chief executive officer.

“We see high potential for commercializing game-changing technologies we’ve been developing, which should not only lead to significant reductions in greenhouse gas emissions and water use, but also greatly enhance the economics of our operations.”

“We try not to get too excited when times are good and try not to get too depressed when times are bad,” said Kruger at Imperial’s investor day in Toronto on Wednesday.

“When’s the best time to build things? When no one else is building, because you get the highest quality trades and contractors.”

Another Canadian-based company, Teck Resources Ltd, has not yet made a final investment decision on its $20.6 billion Frontier oil sands project.  The open-pit Frontier project is currently undergoing regulatory hearings.

Teck says Frontier will produce 170,000 b/d in its first phase, starting in 2026.  According to Teck, the mine would be economical at a range of oil prices and new technology will help make it among the lowest-emitting oil sands operations.

“While we know that use of alternative energy will increase, we also know that oil will remain an important part of the world energy mix,” Teck spokesman Chris Stannell told Reuters. “The long-term outlook for the global oil market is favourable for a project such as Frontier.”

Both Teck and Imperial’s projects have backing from nearby First Nations.  Melody Lepine, band director with the Mikisew Cree First Nation says the band conditionally supports Frontier and is hoping to buy a stake in the project.

She adds that Aboriginal support should reassure shareholders: “Teck and Imperial can go back to their investors and say, ‘look we have these agreements with indigenous communities.'”

Last year, Mikisew was one of two bands to invest in Suncor Energy’s storage facility.

The Athabasca Chipewyan First Nation has also backed Frontier.  Chief Allan Adam, a former industry opponent, told Reuters that he believes oil is not going away and he can protect his community interests from the inside.

“If people are saying the oil sands are going to die off, I imagine they’re going to park their vehicles and start walking. I don’t think that’s going to happen anytime soon,” Adam said.

While both projects have garnered Aboriginal support, pipeline bottlenecks remain an issue.  Last month lack of pipeline capacity boosted discounts on Canadian crude to record levels.

Imperial and Teck are both betting on new and expanded pipelines to move the oil sands crude to global markets.

There are skeptics who doubt the projects will pay off.

“The challenge with both is oil sands projects are typified by high up-front capital,” IHS Markit vice-president Kevin Birn told Reuters. “And you have to wait years before you generate any revenue.”

The upside of an oil sands asset is that production doesn’t decline for decades after the initial capital outlay, but costs remain constant even in the current low-price environment and that damages  balance sheets, he told Energi News in an interview.

“The decision to invest billions over multiple years only to have production come online during a period of price volatility, that’s a very hard thing to justify for a company at this point. And many companies are still doing balance sheet repairing in the oil sands,” he said. 

And some Teck shareholders are wondering if the coal miner should be in the oil business, according to Jeremy Sussman, Clarsons analyst.

“Do you double down? Do you divest? It’s an open question,” he said.

Manash Goswami, senior vice president at First Asset ETFs says the odds seem longer for Teck’s project compared to the Aspen oil sands project.  First Asset ETF owns Imperial shares.

According to Goswami, the Teck Frontier project “doesn’t make any sense”.  He added “It’s hard to see, unless oil prices go materially higher, another mining project getting sanctioned.”



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