Most attractive leases in the oil sands snapped up
By Carrie Tait, Financial Post
March 27, 2009
CALGARY, Alberta -- In Alberta’s oil sands, an area roughly the size of Florida, the best real estate is off the market.
Kevin Meyers, head of ConocoPhillips Canada, Friday said the most attractive leases in the oil sands have been snapped up, and his company plans to finish projects it has under construction despite spending cuts.
"The acreage that is prime for mining and prime for [steam-assisted gravity drainage projects], I think most of that acreage is currently under lease," he said in an interview. "When you’re looking at the existing technologies ... most of the good acreage is under lease."
The Canadian division of the international oil and gas powerhouse will spend about $2.1-billion this year, with its Foster Creek and Christina Lake projects slurping up about $1.2-billion of the budget and the remaining $900-million going to its western Canadian natural gas business, Mr. Meyers said. ConocoPhillips, the third-largest energy company in the United States, expects to spend US$15-billion in 2009.
"If it’s in construction, we’re going to finish it," Mr. Meyers said, referring to ConocoPhillips’ Surmont, Foster Creek and Christina Lake oil sands projects. "You have so much sunken investment, it just makes sense to go through, start steaming and get revenue coming in the door."
The price of oil must continue to rise past US$50 a barrel before ConocoPhillips will proceed with further sanctioning, part of the regulatory process needed to start or expand in the oil sands, Mr. Meyers said.
He would not pinpoint how high oil must rise, but Mr. Meyers did say he expects to reach the magic number in the next 12 to 18 months.
Because the blue-ribbon leases have been snapped up, companies wishing to expand or move into the oil sands are going to have to go after the existing leaseholders.
"They have to acquire an existing company or do a joint venture," said Randy Ollenberger, an analyst at BMO Capital Markets.
Total SA, the world’s fourth-largest oil and gas company, bought Synenco Energy Inc. last year, and is now pursuing UTS Canada Corp. to get its hands on a slice of the Fort Hills mining project.
With respect to Arctic gas, Mr. Meyers believes both the Mackenzie Valley natural gas pipeline and the Alaska natural gas pipeline will eventually be built, but the Canadian project will likely cross the finish line first.
"We believe we need both lines," he said. "It is not the next five years. It is 10, 20 years into the future. We believe North America needs the gas from both of these basins."
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