Engineering & Mining Journal

AUG 2017

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Page 26 of 99

OIL SANDS AUGUST 2017 • E&MJ 25 US$8.5 billion (C$11.1 billion), compris- ing US$5.4 billion in cash plus US$3.1 billion in Canadian Natural shares. In addition, Shell and Canadian Natural each paid Marathon Oil US$1.25 billion for Marathon Oil Canada Corp., which held a 20% interest in AOSP. According to Shell at the time, Canadian Natural has taken over as operator of the AOSP mining op- eration while Shell remains as operator of AOSP's Scotford upgrader and the Quest carbon capture and storage (CCS) project. The AOSP — previously held 60% by Shell, and 20% each by Chevron and Mar- athon — includes the Muskeg River and Jackpine mines and extraction operations and the Scotford upgrader and Quest CCS project. Its production capacity at both the mines and the upgrader is 255,000 bbl/d. Comments made at the time by Shell's CEO, Ben van Beurden, threw some light on the company's strategy. "This an- nouncement is a significant step in re- shaping Shell's portfolio in line with our long-term strategy," he said. "We are strengthening Shell's world-class invest- ment case by focusing on free cash flow and higher returns on capital, and prior- itizing businesses where we have global scale and a competitive advantage." In other words, Shell did not see the potential for making much money out of its oil sand operations any time soon. Shortly after Shell's move, Cenovus Energy announced it was to acquire Con- ocoPhillips' 50% interest in the FCCL Partnership, the companies' jointly owned oil sands venture that was operated by Cenovus. The price paid totaled C$17.7 billion, made up of C$14.1 billion in cash plus Cenovus shares, with the deal including most of ConocoPhillips' Deep Basin conventional oil and gas assets in Alberta and British Columbia. Two of the oil sands properties in- volved, Foster Creek and Christina Lake, are already in production, with capacities of 180,000 bbl/d and 210,000 bbl/d re- spectively, while the Narrow Lake prop- erty remains at the engineering stage of development. "With the completion of this transfor- mational deal, we now have full control of our best-in-class oil sands projects and an exciting new growth platform in the Deep Basin that provides us with significant short-cycle development opportunities to complement our long-term oil sands growth portfolio," said Brian Ferguson, Cenovus president and CEO. "As a result of this transaction, we've now doubled our production and reserves base." Reserves Trimmed Not only have some of the majors been voting with their feet, but the recent low oil price has forced others to review their reserve estimates and make appropriate adjustments. The most significant of these came from ExxonMobil, which to- gether with its Canadian subsidiary Impe- rial Oil, operates the Kearl oil sands mine. In February, the company wrote down the value of its oil and gas reserves by 19%, including 3.5 billion bbl at Kearl and a further 200 million bbl at its Cold Lake in-situ recovery operation. However, as was subsequently pointed out in the media, the removal of these reserves from the "proven" category was more to do with the way that the U.S. Securities and Exchange Commission (SEC) requires companies to categorize reserves than anything else. In essence, the SEC rules state that companies must value their reserves based on the average commodity price for the preceding calendar year. By contrast, comparable Canadian NI 51-101 criteria permit companies to use seven- to 10-year price forecasts when valuing their reserves — the equivalent, as one commentator in the Calgary Herald put it, of "the U.S. method being akin to driving down the highway while looking in the rear-view mirror while Canada's approach is fixed on the future." Hence, given the low oil price during 2016, ExxonMobil had no option but to remove virtually all of its oil sands re- serves from "proven," with the opportuni- Handling raw bitumen ore at Syncrude's Mildred Lake operation. According to Suncor, now its majority shareholder, Syncrude achieved its best-ever six months of production in the second half of 2016. Operations at Canadian Natural's Horizon mine, where the company ramped up production strongly last year and already has an 80,000 bbl/d Phase 3 expansion scheduled for commissioning late this year.

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