Imperial Oil (TSX:IMO) said on Friday that it had slowed down the development of its Aspen oil sands project, due to the market uncertainty that the mandatory production cuts in Alberta have created.
Imperial Oil, alongside Suncor Energy (TSX:SU) and Husky Energy (TSX:HSE), has opposed the cuts across the board and those companies—mostly with investments in downstream operations that had benefited from the very low prices of refinery feedstocks—continue to hold the view that the Alberta government has been wrong in intervening on the free market.
“Imperial’s view remains that free markets work and intervention sends a negative message to investors about doing business in Alberta and Canada. The company remains concerned about the unintended consequences of the government’s decision to manipulate prices, including the negative impact on rail economics,” Imperial Oil said in today’s statement announcing the delaying of the Aspen project.
The company decided to proceed with the development of the project in November last year, a month before the Alberta government mandated oil production cuts in its attempt to lift the then-very low Canadian heavy oil prices.
The Aspen project northeast of Fort McMurray, Alberta, will involve an investment of US$1.95 billion (C$2.6 billion) and is expected to produce around 75,000 barrels of bitumen per day. In November, Imperial planned construction to begin in the fourth quarter of 2018 and the project to start up in 2022.
In light of the Alberta production cuts, “the slowdown in project execution, given the limited winter drilling and site preparation season, will likely result in a delay of at least one year,” Imperial said today.
“[W]e cannot invest billions of dollars on behalf of our shareholders given the uncertainty in the current business environment,” Imperial chairman, president and CEO Rich Kruger said in the statement.
“The decision to return to planned project activity levels will depend on factors such as any subsequent government actions related to curtailment and our confidence in general market conditions,” Kruger added.
On Imperial’s Q4 earnings call in early February, Kruger said:
“So in short, with a stroke of a pen, the government began picking winners and losers. We think this action is unfair, anticompetitive and not representative of free economy in a modern democracy.”
By Tsvetana Paraskova for Oilprice.com
