​Massive new mine could be oilsands’ first big price war victim

Fort Hills Image: JWN Energy

The last major oilsands mine to start operating in northern Alberta could be Canadas first big casualty of the Saudi-Russian price war and the Covid-19 pandemic.

Teck Resources Ltd., one of the partners in the Fort Hills project that formallyopenedin September 2018, is considering a full shutdown of the mine to cut costs after local prices hit record lows. Suncor Energy Inc., another partner in the venture,announcedlast week one of the mine’s two production lines would be closed to preserve cash.

The partners continue to further analyze capital- and operating-cost reduction opportunities, and, as you might imagine, were certainly looking at the potential shutdown of the operation,Teckchiefexecutiveofficer Don Lindsay said during an investor presentation.However, more work needs to be done and we will update you as work progresses.

Storage tanks worldwide are brimming with crude as the global pandemic destroys demand, while Saudi Arabia and Russia flood the market in a fight for market share. The dual shock is pushing some producers to the brink, with shale titan Whiting Petroleum Corp. filing for bankruptcy on Wednesday. Meanwhile, refineries in North America are cutting fuel production, with some shutting down altogether.

Fort Hills can produce 194,000 barrels of oil a day, more than OPEC member Equatorial Guinea. Total SA is also one of the owners.

"At this time, we have made no decision to move to a full shutdown,a representative for Suncor said."The partners havent discussed a full shut down,which would require unanimous consent of the shareholders, she said.

Canadian oil producers have already announced about 100,000 barrels a day of production cuts in response to the price crash, Goldman Sachs Group Inc. analyst Emily Chieng said in a note. Further cuts will be necessary to respond to the reduction in demand, otherwise commercial inventory levels could be breached within two to three weeks, she said.

Oil-sands shutdowns could reach half a million barrels a day, with the bulk of operational shut-ins starting in May, Matt Murphy, a director of research at Tudor Pickering Holt & Co., said by phone.

© 2020 Bloomberg L.P.

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