A lack of diversification in the oil sector may not serve Canadians’ longer\u002Dterm interests
In April, Suncor Energy announced it was divesting its wind and solar projects and assets in Norway and the United Kingdom to focus on its crown jewels, the oilsands. More recently, Cenovus Energy reached an agreement with BP Plc to buy out BP’s 50 per cent interest in the Sunrise oilsands project in exchange for cash and Cenovus’s 35 per cent position in the undeveloped Bay du Nord project off Newfoundland and Labrador.
The Bay du Nord offshore project will require huge injections of cash to build, and the Atlantic Ocean is not a tame place to operate. Shareholders of BP and Equinor aren’t likely to see returns for a decade. For Cenovus’s investors, meanwhile, a higher-risk, longer-term investment couldn’t compete with the immediate opportunity to build on a proven oilsands base at a good price.
Investors in oilsands projects are clearly attracted to the assets’ long term production trajectories. On the other hand, they recognize that bitumen producers are constrained in their ability to grow the assets through the drill-bit because governments have imposed an overall GHG cap. Alberta’s Oil Sands Emissions Limit Act establishes an annual emissions limit for cumulative GHG emissions from all oilsands sites in the province.
Oilsands producers have to be prepared to invest big in carbon-reducing infrastructure so as to meet the federal government’s climate goals and comply with voluntary ESG pledges. Both the uncertainty surrounding legislated GHG caps and the anticipated cost of carbon-reduction technology have helped persuade non-Canadian investors to sell off their oilsands stakes, most often to Canadian operators. In the past few years, Shell, ConocoPhillips, Equinor and Devon Energy have exited.