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ConocoPhillips pulls back on plan to sell Canadian oil sands assets

Tthe Surmont oil sands project, co-owned by ConocoPhillips and Total.

Nathan VanderKlippe/The Globe and Mail

ConocoPhillips Co. is pulling back on plans to sell its Canadian oil sands assets after it exceeded its target for raising capital by divesting energy properties elsewhere in the world.

The oil and gas major had been looking to find buyers or partners for 50 per cent of its mostly undeveloped oil sands holdings as part of its quest to pocket between $8-billion (U.S.) and $10-billion by selling assets around the world. The Houston-based company has exceeded this amount, allowing it to relax its plans in Alberta.

ConocoPhillips is the latest energy company to hold on to assets it planned to divest amid a disappointing environment for selling Canadian oil reserves. Extracting bitumen in northern Alberta is largely the purview of experienced companies with deep pockets. It is politically and technically challenging, particularly as shortages of skilled labour continue to hurt energy producers in Western Canada and a rush of new supply from U.S. oil fields has forced Alberta producers to sell crude at a sizable discount to the North American benchmark.

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Further, now that the federal government has restricted state-controlled energy companies from acquiring majority stakes in the oil sands, the pool of potential buyers is smaller. Some observers have warned that the rules, announced in December, would depress the value of oil sands projects, although ConocoPhillips executives declined to draw a link between the new policy and their decision.

The company has marketed the oil sands assets and while buyers have shown interest, the process is on "pause," Ken Lueers, the president of ConocoPhillips' Canadian division, said in an interview. "We're not in any hurry. We don't need to. Our balance sheet is very strong so it is not something we need to go and actively pursue."

The properties, however, have not been yanked off the auction block. "We're being very thoughtful about the ways in which we extract the most value from that effort," he said. "It caused us to not have to go and rush in to any kind of effort with regard to what we were trying to go and do on Canadian oil sands."

The international company set out its plans to sell assets in late 2009, and proceeded to find buyers in Nigeria, Algeria and Kazakhstan. It was considering selling stakes in six Alberta oil sands properties producing about 12,000 barrels a day from an estimated 30 billion barrels of bitumen in place.

A trio of energy companies from India bid $5-billion for some of the assets but a deal never surfaced, according to media reports last year.

Other companies have pulled oil sands assets off the block over the past year when offers lagged their expectations.

In May 2012, Royal Dutch Shell PLC said it intended to jettison its Orion steam-driven development in Northern Alberta, a 5,000-barrel-a-day project that some analysts had pegged as being worth about $200-million.

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"We received a number of offers for Orion but none that reflected its value and so ended sale activities. We continue to operate this valuable asset," Shell spokesman David Williams said.

Koch Industries Inc., the private U.S. conglomerate owned by the billionaire Koch brothers, put interests in six undeveloped oil sands holdings up for sale in June, 2012. The properties were said to contain 2.9 billion barrels of recoverable bitumen and the production potential was pegged at a hefty 300,000 barrels a day.  At the time, Koch Oil Sands Operating ULC, the Calgary-based unit, said it was looking to attract partners with various development capabilities. However, a deal for just one of the properties, in the Cold Lake area, was made public, selling for $120-million to Baytex Energy Corp. in October.

Indeed, the company elected to hold on to many of the assets, Paul Baltzer, spokesman for the Wichita, Kansas-based parent company, said.

" Some of the properties were sold and we have elected to retain the balance for further development," Mr. Baltzer wrote in an e-mail.

Would-be investors, such as foreign state-owned companies or domestic players expecting to eventually sell out to them, are now shying away from starting capital-intensive projects from scratch as economic and political risks have grown.

"I think they just have better places to put their money," said Jim Hall, chairman and chief investment officer with Mawer Investment Management Ltd. in Calgary.

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"People are looking at prospects for these projects and saying, these are single-digit return-type projects. They've got lots of operational risk. And they've got to overlay that on the heavy oil differentials. I'm not sure I want to tie myself into a 50-year project at an 8-per-cent return.

"With all those risks stacked up, I might allocate capital elsewhere."

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