ConocoPhillips takes Canada cut

23 February 2017, Week 07, Issue 446

ConocoPhillips has taken a major write-down on its Canadian oil sands reserves as a result of lower prices. At the end of 2015, proven undeveloped reserves were 3.02 billion barrels. By the end of 2016, though, this figure had been reduced to 1.61 billion barrels. Of this amount, revisions – focused in the oil sands – accounted for a reduction of 1.33 billion barrels. Bitumen reserves were decreased from 2.39 billion barrels at the end of 2015 to 1.25 billion barrels at the end of 2016. 

The company disclosed its full-year results on February 21, confirming its statement from earlier in the month. ConocoPhillips did go on to say, though, that it expected to rebook the reserves, presumably once prices rise. 

Under Securities and Exchange Commission (SEC) rules, the average price for a year is used to determine the likelihood of a resource being developed. Should the price fall too low, companies are required to cut reserve figures. 

Production costs in Canada were disclosed as being US$14.2 per barrel, the second highest in the company’s portfolio after Africa, which came in US$31.42 per barrel. The Africa result is anomalous, referring only to ConocoPhillips’ Libyan assets, which have only recently restarted after outages owing to insecurity. Meanwhile, the company-wide sales price was US$37.82, while Canada came in lower, at US$35.25. Bitumen prices were even lower, at US$15.27 per barrel. 

The independent lost money in North America as a whole, taking a loss in the Lower 48 states of US$2.26 billion and US$935 million in Canada. 

The company works in the Athabasca oil sands principally through two 50:50 ventures, one at Surmont with Total and the second known as FCCL with Cenovus Energy. The latter has three bitumen-producing projects – Foster Creek, Christina Lake and Narrows Lake – which use steam-assisted gravity drainage (SAGD). 

In addition to reducing reserves in its oil sands business, ConocoPhillips also cut the book value of its FCCL asset by US$1.71 billion in response to currency changes. 

ConocoPhillips’ reserve cut at its oil sands assets mirror other companies working in the region, such as ExxonMobil. In October 2016, ExxonMobil warned that it might have to remove around 3.6 billion barrels of bitumen, held under its Kearl licence, from its reserves. 

Canadian production has grown strongly over recent years but this rate is slowing. A note this week from Bank of America Merrill Lynch predicted Canadian output would fall from an average of 180,000 bpd of new production over the last five years, to 80,000 bpd in the next five years. 


Narrows Lake

FCCL’s Narrows Lake was approved in 2012, with the first phase expected to produce 45,000 bpd of oil and the project ultimately reaching 130,000 bpd. Construction was delayed in 2015, though ConocoPhillips said it expected engineering work to take place in 2017. 

A report from Cenovus in mid-February said it expected to provide an update on capital costs and timing on Narrows Lake in June, at its investor day. “We have the financial strength to reinvest in Foster Creek phase H and Narrows Lake phase A, once we’re confident we’ve defined the best possible development plans,” said Cenovus’ CEO and president, Brian Ferguson. “With two new expansion phases already ramping up, our planned construction of Christina Lake phase G and potential restarts at Foster Creek and Narrows Lake, we have a clear line of sight to five years of growth that would take our oil sands production capacity to more than half a million barrels per day gross.” Narrows Lake involves SAGD with the addition of butane, allowing oil to flow more freely, while also reducing water and gas needs. 


Edited by

Anna Kachkova


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