Just as the long-predicted weather disasters are coming to pass before our eyes, so too are the stranded assets of the oil and gas industry. In July, French fossil fuel multinational Total announced “asset impairment charges” caused by low oil prices, and “in line with its new Climate Ambition announced on May 5, 2020 , which aims at carbon neutrality, Total has reviewed its oil assets that can be qualified as “stranded”, meaning with reserves beyond 20 years and high production costs, whose overall reserves may therefore not be produced by 2050. The only projects identified in this category are the Canadian oil sands projects Fort Hills and Surmont.” Total also cancelled its membership in the Canadian Association of Petroleum Producers (CAPP) , as had Teck Resources in May 2020 as part of the cost-cutting which saw it withdraw from the Frontier mine project in February.
As reported by Bloomberg News on August 5, a regulatory filing to the SEC by Exxon announced that low energy prices render as much as 20% of its oil and natural gas reserves as stranded assets, without book value. The massive Kearl oil-sands mine near Fort McMurray Alberta was the only operation specifically named in Exxon’s filing, and a separate filing of Exxon subsidiary Imperial Oil Ltd also singled out Kearl’s reserves as “imperiled”.
The Energy Mix summarized and commented on these developments in “Colossal fossil Total declares $9.3b in stranded assets in Alberta tar sands/oil sands” (July 31) and “Exxon rips up $30 Billion rebuilding plan, could declare stranded assets at Kearl Lake” (Aug. 19).
A different future?
In sharp contrast to the companies’ announcements: the Alberta office of Price Waterhouse has posted a rosy consultants’ view in a series titled: Energy Visions 2020: What’s ahead for Canada’s oil and gas industry . Part 1, “The Evolving Role of oil and gas in the Energy Transition” acknowledges the current low demand, but hones to that persistent industry view: “Given the cyclical nature of the industry, we anticipate that within five years we’ll have moved into a period of recovery and growth. By then the current oversupply will likely have been drained.” PWC’s prescription for Canadian oil and gas producers: “to differentiate themselves from global competitors, they’ll have to continue to focus on important differentiators aligned with environmental, social and corporate governance (ESG) measures… Canadian oil and gas companies are already global leaders on some ESG principles. These include demonstrating high employee health-and-safety standards, a record for empowering and investing in the communities in which they operate, support for reasonable government carbon pricing and a commitment to new technologies to reduce emissions. But the challenge remains around how our industry communicates this story to investors.”
Part 2, “Finding Opportunity for Canada in the Global Energy Transition” states: “Canadian energy companies have the opportunity to proactively address climate issues, take advantage of new opportunities where possible and find ways to create additional value for their communities, employees and shareholders.… We can and must raise our profile by highlighting all the positive achievements we’ve made in producing our energy more efficiently by using new technologies…”. Post Covid, “there may be opportunities for those companies that have the desire and balance-sheet strength to pursue new capital-intensive energy investments. Companies for which diversification isn’t an option must stay focused on their core business and continue to execute more efficiently, digitally and diversely than any global competitor……..We can expect that federal government support for all industries will come in some form of infrastructure investment, and the adoption of alternative energies will likely be part of the government’s infrastructure agenda.“
Finally, Part 3, “New World, New Skills: Preparing your workforce for the Energy Transition” discusses “The Transformation Imperative”, but focuses on automation and artificial intelligence as the disruptors. The report offers the general advice that employers need to create an “upskilling” organizational culture for their employees, while acknowledging that millennials rank the oil and gas as their least attractive career destination.