Imperial Oil slows development of Aspen project, cites Alberta production cuts

CALGARY — Imperial Oil Ltd. has slowed the development of a $2.6-billion oilsands project because of uncertainty due to the Alberta government's oil production curtailment program and other challenges.

First production from the Aspen in-situ project had been expected in 2022 but will now likely be delayed by at least one year, Imperial said Friday.

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The project was to add 75,000 barrels per day of bitumen production to Imperial's output of about 300,000 bpd.

The Calgary-based company — an integrated producer and refiner — sanctioned the project in November, after receiving provincial approval but before the Alberta government announced a production curtailment program effective Jan. 1.

The province mandated the production cuts in an effort to reduce a price discount on oil produced in Western Canada.

Rich Kruger, Imperial's chairman, president and chief executive, said in a statement that the decision to delay the Aspen project was a difficult choice, given that it had received a green light to proceed only in November.

"However, we cannot invest billions of dollars on behalf of our shareholders given the uncertainty in the current business environment," he said.

"That said, our goal is to ensure the work we do this year will enable us to effectively and efficiently resume planned activity levels when the time is right."

He added that the decision to return to planned project activity levels will depend on factors such as "any subsequent government actions related to curtailment and our confidence in general market conditions."

Imperial also said it "remains concerned" that the government's plan could have unintended consequences, including a negative impact on rail economics.

The Alberta government initially ordered production of raw crude oil and bitumen to be cut by 325,000 barrels per day to deal with low prices and a lack of pipeline and rail capacity for moving the products out of the province.

Its premier had already said the government would buy as many as 80 locomotives and 7,000 rail tankers, expected to move the province's excess oil to markets, with the first shipments expected in late 2019.

Since then, the province has eased the mandatory production cuts as the discount for Western Canadian Select bitumen-blend oil compared with New York-traded West Texas Intermediate has fallen.

Alberta Premier Rachel Notley said Friday after a speech to members of a food workers' union in Calgary that "it's no secret Imperial was one of the groups that was very much opposed to curtailment."

The policy has been divisive in the province, with several producers including Canadian Natural Resources Ltd. and Cenvous Energy Inc. supporting the policy, while integrated producers Suncor Energy Inc. and Husky Energy Inc. siding with Imperial in opposition.

Imperial was making more money as a refiner when Alberta's oil was at a lower price, but Notley said her government made the best decision it could for the greatest number of workers and "the people of Alberta who own the resources."

"It's not our first choice. It was the best decision out of a series of bad options brought about as a result of our inability to move our product out of the province," Notley said.

"Our government's focus has been and continues to be on increasing our takeaway capacity through rail in the medium term, and through more pipelines in the longer term. And so we're going to keep fighting."

Companies in this story: (TSX:IMO, TSX:SU)

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