Imperial Oil Ltd. says it will write down billions of barrels of reserves at two major oil sands projects, signalling they cannot be economically produced with energy prices that prevailed last year.
Calgary-based Imperial said on Tuesday that lower oil prices in 2016 will force it to drop an estimated 2.6 billion barrels of bitumen reserves from the “proved” category at its Kearl oil sands mine, plus another 200 million barrels at its Cold Lake, Alta. operations.
The new classification is the result of U.S. securities regulations, under which oil reserves are evaluated using 12 months of trailing prices rather than forecasts of future prices.
The downgrade comes even as crude prices have edged up from multi-year lows that were hit last year, contributing to steep losses and deep cuts to staffing levels across the industry.
It points to dim prospects for future expansions at Imperial’s massive Kearl project and similar developments should prices remain low, despite efforts by producers to claw back costs in a bid to weather a slump that has dogged markets for more than two years.
“It’s stuff that would require them to build a brand-new mine more or less to get after it,” Raymond James analyst Chris Cox said by phone. “That’s not something they’ll do at the current prevailing oil price.”
Imperial and its parent company, Exxon Mobil Corp., have spent $21.8-billion developing Kearl, which produced an average of 169,000 barrels per day of bitumen last year, well shy of its 220,000-barrel capacity.
The company said U.S. West Texas intermediate crude averaged $43.44 (U.S.) a barrel last year, and that it received an average of $26.52 (Canadian) per barrel of bitumen. On Tuesday, WTI was hovering around $53 (U.S.)
Imperial, which is 69.6-per-cent owned by Exxon, said it could upgrade the reserves to proved again “at some point in the future” should average oil prices rise or as a result of cost reductions or efficiency gains.
The company said it did not expect the move to impact ongoing operations or alter the outlook for future production. It said it would not downgrade the reserves under Canadian rules.
Exxon, which has a 29-per-cent stake in Kearl, did not mention the writedown as it released financial and operational results on Tuesday. However, the Irving, Tex.-based company had previously said 3.6 billion barrels at the mine could be “de-booked” as proved reserves in its accounts.
Imperial on Tuesday reported net earnings for 2016 of $2.2-billion (Canadian), or $2.55 per share, compared to $1.1-billion, or $1.32 a share, in the prior year.
The results were driven by a $1.7-billion gain tied to the sale of its retail service stations. The fourth-quarter profit was $1.4-billion, or $1.70 a share, versus $102-million, or 12 cents, a year ago.
Full-year production dipped slightly to 399,000 barrels of oil-equivalent per day, from 400,000 boe/d in 2015.
In the fourth quarter, Imperial’s share of production at the Syncrude Canada oil-sands project averaged 87,000 barrels per day, up from 64,000 barrels a year ago, helped by improved reliability at the operation.Report Typo/Error