Page 4 - NorthAmOil Week 08

NorthAmOil COMMENTARY NorthAmOil
Teck withdraws oil
sands application prior
to federal decision
Canada’s Teck Resources has withdrawn its application to build the Frontier oil sands mine, just days before the federal government was due to make a decision on the project
ALBERTA
WHAT:
Teck has abandoned its plans to build the Frontier oil sands mine.
WHY:
The company has blamed politics, rather than economics, for its decision.
WHAT NEXT:
Canada will continue struggling to reconcile its environmental and energy ambitions.
CANADA’S Teck Resources has withdrawn its application to build the proposed Frontier oil sands mine in Alberta. The surprise decision, announced days before Ottawa was due to reveal whether it would approve the project, comes as a major new blow to Canada’s beleaguered oil sands industry.
The CAD20.6bn ($15.5bn) Frontier had been the first major new oil sands project to be pro- posed in years, with the oil sands industry having been hit particularly hard by a combination of the collapse in crude prices and environmen- tal pushback. The facility, which had been due to produce 260,000 barrels per day (bpd) at its peak, would have been the largest oil sands mine in Alberta.
As Ottawa’s decision on Frontier neared, debate intensified over the project and Canada’s overall efforts to balance energy development with environmental goals. This came against the backdrop of growing public interest in decar- bonisation, and concerns over the greenhouse gas (GHG) emissions intensity of oil sands projects.
Since he first took office in 2015, Canadian Prime Minister Justin Trudeau has been seeking to balance his country’s energy ambitions with environmental protection. His government’s decision on Frontier was set to be viewed as a measure of Ottawa’s performance in this area. Indeed, even with Teck’s withdrawal, the govern- ment’s record will now come under additional new scrutiny.
Politics vs economics
Hours after the fate of Frontier became public, Teck’s CEO, Don Lindsay, blamed politics for the project’s demise, rather than economics. In com- ments made at the BMO Capital Markets Global Metals and Mining Conference in Florida on February 24, Lindsay said the project had become
a lightning rod for contentious major issues, including climate change policies and indige- nous rights.
“The project has landed squarely at the nexus of a much broader national discussion on energy development, indigenous reconciliation and, of course, climate change,” Lindsay said. “We are stepping back to allow Canada to have this important discussion without a looming regula- torydeadlineforjustoneproject.”
The withdrawal of the application for Frontier came days after Teck warned that it could face a CAD1.1bn ($828mn) impairment charge if Ottawa were to reject the project. This came as the company also said it was writing down the value of its 20% stake in the operational Fort Hills oil sands mine by CAD910mn ($685mn) on lowered expectations for future crude prices. On the company’s earnings call last week, Lind- say cited the lack of takeaway capacity as having a negative impact on Fort Hills.
Analysts had previously questioned whether the economics of Frontier made sense, owing to the fact that Teck had initially assumed an oil price above $95 per barrel when it said it was considering the project. Meanwhile, the current WTI crude price had fallen to around $50 per
Teck has also written down the value of
its 20% stake in the operational Fort Hills
oil sands mine by CAD910mn ($685mn) on lowered expectations for future crude prices.
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w w w . N E W S B A S E . c o m Week 08
27•February•2020