Log in
E-mail
Password
Remember
Forgot password ?
Become a member for free
Sign up
Sign up
Settings
Settings
Dynamic quotes 
OFFON

4-Traders Homepage  >  Equities  >  Toronto Stock Exchange  >  Imperial Oil Ltd    IMO   CA4530384086

SummaryChartsNewsAnalysisCalendarCompanyFinancialsConsensusRevisions 
News SummaryMost relevantAll newsSector newsTweets 

U.S. shale boom forces change in Canadian oil patch

share with twitter share with LinkedIn share with facebook
share via e-mail
0
02/26/2013 | 12:07am CEST

The U.S. shale oil revolution is forcing Canada's oil sands industry to question whether there is a future in processing its crude into lighter oil, a tried-and-true way of wringing the most money out of a resource considered crucial to the country's prosperity.

Suncor Energy Inc (>> Suncor Energy Inc.), which nearly 50 years ago pioneered the practice in Canada of mining and then upgrading the oil sands bitumen into refinery-ready light crude at the same site, served notice this month that the era of the integrated project may be ending.

It said it was reexamining a plan to build a multibillion-dollar upgrading plant in northern Alberta and taking a C$1.5 billion ($1.5 billion) charge to account for lower projected cash flow. The reason: cheap oil from North Dakota and elsewhere is making it uneconomical over the long haul to build such complexes.

"Why would you spend billions of dollars to build an upgrader to create a product that is looking to be oversupplied in the markets you can access today?" said Jackie Forrest, director of global oil for consultancy IHS CERA.

The Suncor move is more evidence of a shift from upgrading that is already well underway. Imperial Oil Ltd (>> Imperial Oil Limited), for example, is building the C$12.9 billion Kearl development - the next major oil sands project to come online - without a processing plant.

Once considered a sure winner by most Canadians, the oil sands industry is now on the defensive on several fronts, struggling to prove it can deliver its raw materials to refiners at a competitive price and at an acceptable environmental cost

The dilemma over upgrading points to more problems ahead as oil sands producers compete for capital against the developers of the cheaper, less damaging shale oil.

With less-processed heavy oil competing with the increased Bakken flows for pipeline space to U.S. refineries, a glut in Western Canada has built up, generating a wide discount on Canadian crude against benchmark West Texas Intermediate. That has created an immediate problem, not the least for Alberta, the province at the center of Canada's oil industry.

Alberta Premier Alison Redford blames the so-called "bitumen bubble" for a forecast C$6 billion shortfall in revenues in the coming fiscal year. Deep budget cuts are in the offing.

As a result, the province is pushing for ways to shore up its budget against the falling revenue stream, while unions are calling for more upgrading to create jobs.

PRICE DIFFERENTIAL

The industry, however, seems to be moving in the opposite direction. The problem is, building a new upgrader - a tangle of pipes and vessels that transforms raw bitumen into an oil product easily used by standard refineries - costs billions of dollars and may make little sense over the long term.

In the short term, on-site processing would allow producers to boost the price of their product by upgrading it, and the wide price spread between cheap heavy oil and more expensive light crude would mean hefty margins.

Indeed, the gap has recently ballooned to more than $40 a barrel under U.S. benchmark West Texas Intermediate, compared with a historical differential of less than $20.

But it takes years to build upgrading plants. In the meantime, new pipelines to export markets are expected to be built over the next decade - whether they are big ones such as TransCanada Corp's (>> TransCanada Corporation) Keystone XL pipeline or incremental expansions.

If that happens the discount on heavy oil should shrink. That would leave the multibillion-dollar upgrading plants less able to compete with shale oil.

IN THE PIPELINE

To be sure, the Keystone XL project - connecting the oil sands with the U.S. Gulf Coast - is facing a full-scale push back from U.S. environmental groups, and final approval from Washington is not guaranteed.

If the pipeline gets built, it would move 830,000 barrels a day of Alberta crude to Texas refineries, many of which are configured to process the heavier grades that are now imported from Venezuela, Mexico and elsewhere.

On today's pipeline network, it costs about $8.50 a barrel to ship crude to the U.S. Gulf region from Alberta, traders say. When new pipelines are built, the light-heavy oil price spread is expected to come close to the shipping cost.

"You expect those bottlenecks will be gone, and once we get global pricing, we've actually seen fairly narrow differences between light and heavy crude," said IHS's Forrest.

SUNCOR DECISION

Against that backdrop, Suncor says it hasn't made a final decision on the proposed Voyageur upgrader, the centerpiece of its expansion strategy.

"We're looking at all options," Chief Executive Steve Williams said this month. "At one extreme you could go ahead with the project as it is. At the other extreme you could cancel the whole project and go ahead with nothing."

Williams fingered the U.S. shale boom as the main reason for the indecision, as oil coaxed to the surface using hydraulic fracturing does not need expensive upgrading to be run in standard refineries.

Oil production in North Dakota has jumped to 730,000 bpd today from just over 100,000 bpd in 2006, making it the No. 2 oil-producing state after Texas. Large volumes of that crude is transported on the same pipelines as the Alberta oil, contributing to the disappearing spare capacity.

In the past year, both Bakken oil and upgraded light synthetic crude, which have similar specs, have climbed in tandem to around par with WTI, from around $13 a barrel below.

A recent PriceWaterhouseCoopers study said shale oil is likely to make the largest single contribution to total U.S. oil output growth by 2020, and that increased global shale output could lead to lower crude prices than are currently projected.

Those barrels have begun to replace some heavy crude in the U.S. market, squeezing the economics on upgrading plants that would pump out products to compete, said Reynold Tatzlaff, PwC's Canadian energy leader.

NOT DEAD

That's not to say upgrading is dead. Existing plants pump out more than 1 million barrels of light synthetic crude a day. Privately held North West Upgrading Inc and Canadian Natural Resources Ltd (>> Canadian Natural Resources Limited) are proceeding with a C$5.7 billion stand-alone upgrader and refinery near Edmonton.

But the North West plant will get help from a steady supply of bitumen from the Alberta government as part of an initiative to generate more valued-added dollars. Expansions, such as one that Canadian Natural is planning at its Horizon oil sands project, come cheaper than starting from scratch, though it is not rushing to start the project.

Mike Deising, a spokesman for Alberta Energy Minister Ken Hughes, said he could not comment on various companies eschewing upgraders, saying they all employ different forecasts.

In another trend working against upgrading, oil sands mining is giving way to less-centralized steam-driven production methods, which are less costly to expand and which can ship diluted bitumen directly into the market. Several U.S. refineries have been retooled to run more of the heavy crude.

Meanwhile, notorious construction cost overruns and a string of outages at existing upgraders have raised questions about reliability of returns and operations.

For more than a decade, most tar sands projects in Alberta blew well through their budgets as the rush to develop the resources stretched Alberta's skilled labor pool thin. Companies sought to bolster manpower by importing workers from around the world, and the rush to develop drove up the costs of steel, other materials and equipment.

Several plants proposed before the 2008-2009 financial crisis were canceled, as credit dried up.

"It's been the perception that any and nearly all upgraders have been plagued with fires, maintenance issues, cold weather issues. They're expensive to run, and even more so, they're expensive to build," said Wood Mackenzie analyst Mark Oberstoetter.

(Editing by Frank McGurty, Janet Guttsman and Bob Burgdorfer)

By Jeffrey Jones

share with twitter share with LinkedIn share with facebook
share via e-mail
0
Latest news on IMPERIAL OIL LTD
04/25 IMPERIAL OIL LIMITED : - Imperial responding to produced water release at Cold L..
04/25IMPERIAL OIL LTD : quaterly earnings release
04/21 IMPERIAL OIL : DBRS Confirms the Ratings of Imperial Oil Limited at AA/R-1 (midd..
04/19 Loblaw to sell gas station business for C$540 million
04/04 Syncrude outage limits ConocoPhillips oil sands production
03/30 IMPERIAL OIL LIMITED (TSE : IMO) Files An 8-K Other Events
03/30 IMPERIAL OIL LTD : Other Events, Financial Statements and Exhibits (form 8-K)
03/27 SUNCOR ENERGY : says it will meet 2017 production targets despite fire at Syncru..
03/27 IMPERIAL OIL : provides update on Syncrude incident response
03/22 IMPERIAL OIL : launches Speedpass+ mobile payment app for Esso-branded sites
More news
Sector news : Oil & Gas Refining and Marketing - NEC
04/27 European shares fall as ECB stands pat, banks drop
04/27DJCHINA PETROLEUM & CHEMICAL : Sinopec First-Quarter Profit Surges
04/27 Dow Chemical eyes consumer markets as it readies for DuPont merger
04/27DJBP Sells Interest in Shanghai SECCO Petrochemical Company to Partner
04/27 EXXON MOBIL : Judge says Exxon owes $19.95 million for Texas refinery pollution
More sector news : Oil & Gas Refining and Marketing - NEC
News from SeekingAlpha
04/27 Notable earnings before Friday?s open
04/24 Canadian Dividend All-Stars Expected To Announce Dividend Increases - Week Of..
04/19 REUTERS : Syncrude still expecting reduced rates in May and June
04/19 Brookfield-led group to buy Loblaw gas stations for C$540M
04/06 THE CANADIAN ENERGY SERVICES INDUSTR : My Investment Thesis
Advertisement
Financials ( CAD)
Sales 2017 31 995 M
EBIT 2017 2 122 M
Net income 2017 2 499 M
Debt 2017 3 423 M
Yield 2017 1,50%
P/E ratio 2017 15,89
P/E ratio 2018 14,47
EV / Sales 2017 1,19x
EV / Sales 2018 1,17x
Capitalization 34 794 M
More Financials
Chart IMPERIAL OIL LTD
Duration : Period :
Imperial Oil Ltd Technical Analysis Chart | IMO | CA4530384086 | 4-Traders
Full-screen chart
Technical analysis trends IMPERIAL OIL LTD
Short TermMid-TermLong Term
TrendsNeutralBearishNeutral
Technical analysis
Income Statement Evolution
More Financials
Consensus
Sell
Buy
Mean consensus HOLD
Number of Analysts 20
Average target price 45,9  CAD
Spread / Average Target 12%
Consensus details
EPS Revisions
More Estimates Revisions
Managers
NameTitle
Richard Michael Kruger Chairman, President & Chief Executive Officer
Jack M. Mintz Independent Director
Victor Leyland Young Independent Director
Margaret Sheelagh Dillon Whittaker Independent Director
Krystyna T. Hoeg Independent Director
More about the company
Sector and Competitors
1st jan.Capitalization (M$)
IMPERIAL OIL LTD-12.66%25 667
EXXON MOBIL CORPORATIO..-9.45%345 114
BP PLC-10.98%114 639
CHINA PETROLEUM & CHEM..6.84%101 132
SAUDI BASIC INDUSTRIES..--.--%75 598
RELIANCE INDUSTRIES LI..31.07%71 834
More Results