Imperial Oil growth on hold because of ‘long, costly, uncertain regulatory environment’ in Canada

Capital investment by Imperial Oil Ltd. is at a historic low because expanding regulatory timelines, market access challenges and escalating fiscal costs make it hard to start new projects, the company’s CEO said Friday.

Rich Kruger said the 138-year old company had hoped to have regulatory approval in hand by now for its 150,000-barrel-a-day Aspen project.

Imperial had counted on Aspen to lead its next major oilsands growth spurt. The project uses industry-leading solvent-assisted SAGD technology that is 25 per cent more capital efficient and produces 25 per cent fewer greenhouse gas emissions than SAGD projects already in operation.

Instead, Aspen, expected to cost $2 billion for each 75,000 barrels a day phase, has been under review by the Alberta Energy Regulator for four and a half years, leaving the company with no new major projects to work on.

“I have lived and worked in a lot of places, and four and a half years to get a project that has strong economics, pace-setting environmental performance, is inordinately long,” Kruger said to reporters after addressing the company’s annual shareholders meeting in Calgary.

“We have provided answers to every question that (was) asked,” Kruger said. “We engaged with whomever we needed to engage. This is an illustration of the long, costly, uncertain regulatory environment that the energy industry faces in this country right now.”

Imperial is 70 per cent owned by Exxon Mobil Corp., one of the few international oil majors still committed to the oilsands after major competitors pulled out to invest in friendlier jurisdictions.

Multiple executives have criticized expanding and uncertain regulatory processes for stifling the investment.

The head of TransCanada Corp. said there was no way his company could revive the $15-billion Energy East pipeline. TransCanada is expanding in the U.S. and Mexico.

“I can’t think of a better opportunity for this nation than Energy East. Unfortunately, the hurdles to get to the finish line were insurmountable and watching what’s happening right now, on the West Coast, it’s hard to imagine how we could resurrect that project,” TransCanada president and CEO Russ Girling said at the company’s annual meeting on Friday, referring to the pipeline fight over competitor Kinder Morgan Canada’s Trans Mountain expansion.

“I never say never to anything but it’s hard to see how the stars and the moon could align so that could be a viable opportunity for us in the near term,” Girling said, confirming that Energy East is cancelled rather than just suspended.

Imperial Oil is a shipper on Trans Mountain and has signed up for space in the proposed expansion, which the British Columbia government wants to derail.

Kruger said the Aspen project may not go ahead even if it receives regulatory approval if it can’t transport the oil to consumers.

“For the industry to have confidence to materially invest in growth, we are going to need new market access,” he said. “In the absence of confidence of that … it will be a big part of our deliberations and consideration on any new expansion.”

Already, the company had to curtail production at its Kearl oilsands project by 12,000 barrels a day in the first quarter because it had no place to put it, Kruger said.

Lack of transportation capacity has meant Canadian oil producers have not participated in strengthening global oil markets, he said.

In first quarter results announced Friday, Imperial said net income grew to $516 million, from $333 million in the same period a year ago; production decreased to 370,000 barrels a day from 378,000 barrels a day; and bitumen sold for $35.61 a barrel on average, 60 cents less than in the same period last year, while synthetic crude was sold for $77.26 a barrel, $9.47 a barrel higher than a year ago.

Kruger said Imperial is now focused on boosting the performance of its existing asset base and giving back to shareholders, including raising its dividend by nearly 20 per cent.

Financial Post, with files from Geoffrey Morgan

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