In a move that might be indicative of flagging international confidence in the Canadian oilsands, Shell has announced it will exit most of its oil extraction projects in Alberta.
The petroleum giant plans to sell its 60 percent holding in Athabasca Oil Sands Project (AOSP) to Canadian Natural Resources Limited, one of its partners. The sale will also include its assets at the Peace River Complex and a number of other undeveloped oilsands leases. In another deal, both Shell and CNR will purchase petroleum producer, Marathon Oil Canada, which owns a 20 percent stake in the AOSP.
That means Shell is looking at mostly getting out of Alberta, with a consideration of $7.25 billion.
The AOSP includes a section of the north half of Alberta that has been criticized as some of the dirtiest, and least sustainable, oil extraction in the world. When oil prices dropped in 2014 and never recovered, the maintenance of such an expensive oil extraction venture in unfriendly economic climates become the focus of much discussion.
Combine that with new carbon price legislation coming from the Alberta and federal governments, and this move could be a sign of things to come, should fossil fuel producers continue to not see profitability in the future of the oilsands.
In the release announcing the deal, Shell CEO Ben van Beurden called it "a significant step in re-shaping Shell's portfolio in line with our long-term strategy." Shell's plan is to continue investing in other markets like deep water extraction and syngas production, he said.
It's tough to say whether carbon pricing policies are behind the departure, as policies are still in flux. According to the president of the Canadian Association of Petroleum Producers, Tim McMillan, details of those federal and provincial laws will be what determines the viability of Alberta's fossil fuel production. (Canada has given the provinces until 2018 to adopt some kind of carbon pricing scheme, and Alberta recently implemented a carbon tax.)
"We're working today with the governments to get that clarity," said McMillan in a phone interview. McMillan pointed to Canada's high environmental standards and technological innovations as reasons why companies want to invest here, but "if we get these policies wrong, we may be driving investment into Nigeria, Saudi Arabia and Venezuela that don't have our high standard or our capabilities to innovate," he argued.
Shell plans to keep operating its Quest Carbon Capture and Storage Project, which is also in Alberta. This ongoing effort injects carbon dioxide emissions created by oil extraction into limestone cap rock, allowing it be stored over 2 kilometers underground. Last year, they hit the milestone of one million tonnes of CO2 captured at the Scotford upgrader.
Efforts to sequester carbon could pay environmental dividends, which is presumably one place where Shell sees a future.
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