Exxon Mobil: Further into Oil Sands

By Andrew Willis

Ownership of Alberta’s oil sands continues to consolidate in the hands of global energy companies, with Exxon Mobil Corp. (XOM) paying $250 million to take over leases owned by UTS Energy.

Exxon, and subsidiary Imperial Oil (IMO), are picking up properties in the northeastern corner of Alberta in a region known as Firebag River; Suncor (SU) is also active in this area.

UTS Energy first acquired property in the area in 2006, and subsequently added to the position. The decision to sell was made part of a larger strategic review of the company’s position that concluded with this sale. RBC Dominion Securities and TD Securities acted as financial advisers to UTS on the transaction, along with law firm Blake Cassels & Graydon.

UTS Energy is focused on developing the Fort Hills oil sands region with Teck and Suncor. The $200 million after-tax proceeds of Monday’s sale will help fund this development. In a report Monday on UTS Energy, BMO Nesbitt Burns analyst Randy Ollenberger said the Firebag River sale, “leaves the company extremely well positioned to respond to the needs of both the Fort Hills project and its portfolio of other development opportunities.”

Last year, UTS Energy was the target of an unsuccessful hostile takeover bid from France’s Total.

Comments

[Mad Hedge Fund Trader]

ahk Anyone who has any illusions about the Canadian tar sands business should take a look at the March issue of National Geographic (click here at ngm.nationalgeographic... ), not normally a prime source of financial and economic news for me. I’m not a fanatic, sandal wearing, organic bean sprout eating environmentalist, but just looking at the glossy, eye opening pictures tells you that this is this an eco disaster of Biblical proportions. A $50 billion investment by several firms over the last decade is now producing 750,000 barrels/day, and another $100 billion was headed north before prices crashed last year. You have to cut down a whole forest, remove two tons of peat, then another two tons of sand, and burn 100 barrels of oil equivalent to heat rivers of water to steam, just to produce a single miserable barrel of oil. This gives you the world’s highest production cost, thought to be $80-$100/barrel. There are now 50 square miles of sludge ponds in Northern Alberta leaching a witch’s brew of poisons into the water supply, which has caused the local cancer rate to explode tenfold. We’re not just talking about a few sick geese here. Canada is the largest foreign supplier of oil to the US, accounting for 19% of our total, and half of that is coming from tar sands. One can only assume that the whole industry was built as a hedge against some Third World War, Armageddon type total cut off of all foreign crude supplies that would drive prices to $500/barrel, making all of this hugely profitable someday. Maybe the owners think they can get away with this because it is in the middle of nowhere. An army of lawyers hitting these projects with a tidal wave of litigation think otherwise. After looking at these pictures and analyzing the numbers, you have to ask if it is really worth it, just so I can drive my Hummer to Wal-Mart.

2009 Nov 02 04:16 PM

[cyberlincoln]

Mad Hedge Fund Trader.... You put it in a way that makes me think differently. I am not a tree hugger but your explanation has logic which, if you live there would make you cring.

2009 Nov 02 08:01 PM

[FishinStatistician]

Nat Geo is overstating the situation. For example 4 tons of material per barrel of oil is just 4 yards of dirt. Much more dirt is moved to generate a comparable $$$ amount of copper, yet no one thinks twice about it. This is an easy mark for National Geographic to take a cheap shot. I'm not so pessimistic.

Also, the gold to lead argument is interesting in that one could burn coal to produce the steam which by their argument would would be turning lead into gold, but burning the coal would be much worse for the carbon footprint....Nat Geo is trying to have it both ways....

2009 Nov 02 08:16 PM

[Dave5577]

Some companies are using SAGD to remove the oil. This leaves a small footprint. See Connacher Oil website and others. Steam Assisted Gravity Drainage (SAGD). Pumps then pump out the pooled oil. Extraction cost can be relatively low and the environmental damage is minimal. Also SLB.NYSE is developing tuned microwave heating to pool oil. However , I prefer building a hundred or so nuclear power plants to help us ease the ultimate transition away from oil. Many environmentalists however do not approve of nuclear energy. This is unfortunate in my opinion.

Long SLB and CLL.TO

2009 Nov 03 03:50 AM

[Rocks and Money]

There is no way to stop developing the tar sands. Unless everyone in the world is willing to pedal a bicycle, that oil will be developed. Nearly every industrialized country in the world holds a stake there now. If it doesn't turn into gasoline and diesel here in North America, it'll go to Asia for the same reason.

Mad Hedge Fund Trader, The idea that clearing land for a tar sand mine is somehow worse than doing the same thing to build a Walmart or housing development is ridiculous. Your production costs are a bit high, too. In the end, all these companies must be profitable. If the tar sands were that bad, you wouldn't see Exxon buying more.

There is no way to start up some nebulous "alternative energy" to take the place of oil. Oil is the fuel for vehicles - planes, boats, cars, and trucks.

Rather than sabotage the tar sand industry, activists should be pushing for carbon sequestration programs. There are hundreds of old oil fields in Canada that could hold captured carbon dioxide. That's the best compromise that balances our climate goals with economic reality.

2009 Nov 03 07:54 AM

[Steven Ward]

Cotu of Syncrude has stated they have planted 10 million new trees plus and are still planting.
Ninety percent of the water used by Syncrude is returned to the Athabasca River and it is clean.
Oil sands has two problems: the tailings ponds and the price of natural gas.
Technology sooner or later will clean the tailings but the real economic problem is not the price of oil but the future price of natural gas. future as in 10 to 20 years out.
The economic difference for the oil sands process is the cheaper btu's of the natural gas needed to process as compared to the current price of oil, the end product.
Now we have dirt cheap natural gas but that can change in a heartbeat with the Obama Admin putting stiff enviro laws on shale gas drilling.
The nat gas price can kill the oil sands not a bunch of enviro lawyers.

2009 Nov 03 09:34 AM

[jarco]

Given all that's been said here and numerous other publications within the industry let alone the environmentalists, one cannot but wonder why Tar Sands is viable at any price below $100/barrel.

XOM is involved because they own a majority of Imperial. But don't get excited that this gives credence to Tar Sands. Imperial dances to the politics in Canada and XOM corporate is staying out of the way (and saying a few prayers).

Like the UK, Canada's economy is almost wholly dependent upon exploiting its Petro and NG holdings. Tar Sands marches on to the peril of both the environment and short term high yield seeking individual investors.

2009 Nov 03 11:39 AM

[WayneS]

XOM is probably using their small footprint method with a couple of dozen wells per pad.
Pumping steam into shallow wells causes more damage to the tubing than damage to the environment. I would bet that XOM has/is developing a better method to extract the tar. I would suggest using CO2, it is a great solvent. In the 70's, I worked on research for New Mexico's tar sands, using microbes to convert the tar into pumpable crude.
If it wasn't profitable, safe and environmentally-neutral, XOM wouldn't be there. Remember Colorado shale in the 80's

2009 Nov 05 01:18 PM