Heavy Oil Investing News

By Duncan Sutherland - Exclusive to Heavy Oil Investing News

Market news

As predicted, the combination of falling oil prices, demand destruction and tight credit is beginning to affect heavy oil and oil sands. Energy stocks and trusts are down, and the news marginalia suggests that companies have a bleak outlook for the future profitability of heavy oil exploration, extraction and upgrading.

Last week, Upgrader noted the postponement of a US$5 billion upgrading plant slated for Northern Alberta. In the intervening week, a steady trickle of such stories has emerged, and is now threatening to become a flood of postponements, relocations, reprioritizations, and other such buzzwords used by executives and PR people to describe the abandonment of now unprofitable projects. As much of life is better understood anecdotally, the story of Connacher Oil and Gas should outline the overall problems fairly well.

Connacher Oil and Gas (TSX:CLL) of Calgary has announced that it will set aside plans to expand the capacity of its heavy oil refinery at Great Falls, Montana, from current levels of approximately 9,500 barrels per day to 35,000 barrels per day. The project will be shelved and not brought forward to Connacher’s Board of Directors in the foreseeable future.

Connacher also made clear that it had secured funding for the SAGD operations at its Algar properties before the credit crunch became the financial crisis. Additionally, it stresses the small price differential between synthetic crude and bitumen as a factor in “postponing” the revamping of the Great Falls refinery. The Globe and Mail’s Norval Scott has a more in depth look at the narrowed differentials here.

Company news

Total SA (NYSE:TOT) has acquired 60 per cent of the Bemolanga Heavy Oil play in Madagascar. Total will work with privately held Madagascar Oil SA (website here). to exploit the 10 billion barrel heavy oil project.

Athabasca Oil Sands Corporation, a privately held Alberta based company, has formed a joint venture with an as-yet anonymous partner. More on this as it develops.

Marathon Oil Corporation (NYSE:MRO) had good news, announcing that it expected the third-quarter production to beat earlier projections, even with hurricane problems taken into account. Marathon also plans to maintain exploration in the US$100 to US$160 million range, and is producing expected levels of bitumen. Overall, good performance by the company.

BP (NYSE:BP) and ConocoPhillips (NYSE:COP) both have intriguing new technologies undergoing testing on Alaska’s North Slope. The North Slope is one of the most challenging regions in the world for heavy oil production due to the extreme climate and environmental constraints. What works in other production zones may not work in Alaska, so these tests are crucial for unlocking the 20 billion odd barrels of oil in the North Slope.

Ivanhoe Energy (TSX:IE) has finalized the contract with Ecuador’s state-owned Petroecuador and Petroproduccion to exploit the Pungarayacu heavy oil deposits. Pungarayacu comprises over 1,000 square kilometers, and is estimated to hold some 4.5-7 billion barrels worth. Upgrader has been on this story since August, and our initial take bears repeating.

Ivanhoe is playing a high-risk, high-reward game in Ecuador, but the lack of other serious investors in the country’s oilfields positions only benefits Ivanhoe. Though President Rafael Correa is less combative and mercurial than Hugo Chavez of Venezuela, he is similarly sceptical of neoliberal economics, free trade and publicly traded oil companies.

International news

To end on a brighter note, there is exceptional news coming out of Somalia, (a phrase not uttered very often) as a kidnapped employee of Vancouver-based Africa Oil Corp (TSX.V:AOI) has been released. Details have been in short supply thus far, but it appears the man was kidnapped by his own bodyguards. The employee was surveying south of Bossaso on the Gulf of Aden. Though Bossaso is in the relatively safe Puntland state, Somalia remains “the world’s most utterly failed state”.