Financing in Focus for Oil Sands Net-Zero Push

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Oil sands operators are in discussions with federal and provincial governments to secure the financial incentives needed to move forward on the main piece of an ambitious plan to eliminate net carbon emissions from most of Canada’s heavy oil production (OD Jun.9'21). Suncor CEO Mark Little told investors on the company's second-quarter earnings conference call this week that members of the alliance -- which comprises five of the top oil sands firms accounting for more than 90% of overall production -- have begun a 90-day "consultation period" with Ottawa “to sort out the details around the investment tax credits” associated with the scheme. “We're making good progress, and we've been very happy with the cooperation between the province and the federal government,” Little said. The key component of the project is a 400-mile carbon trunkline that will carry captured carbon dioxide along a route linking oil sands facilities and terminating at a sequestration site near Cold Lake, Alberta. The carbon capture, utilization and storage (CCUS) part of the plan makes up about 50% of the industry solution to get to net-zero emissions, according to Little. Financing Challenge But financing for the project remains the biggest question mark. “There's lots of challenges around the financing of this,” MEG Energy CEO Derek Evans said during his company’s earnings call last week. “The capture part is the most expensive part of this. And we have yet to look at what the most optimal way of financing this is.” The alliance has not provided any formal estimates on how much the project will cost. However, Evans, in an interview with Canadian oil and gas news website BOE Report this month, gave an “early estimate” cost of C$1.4 billion-C$1.6 billion (US$1.1 billion-US$1.3 billion) just to build the pipeline. Despite rhetoric over the importance of the project, members of the alliance -- which also include Cenovus Energy, Imperial Oil and Canadian Natural Resources -- are likely not willing to contribute large chunks of their own capital to get it done, even as oil sands companies report strong financial results and cash flow on the back of higher commodity prices and production beats. Evans said the alliance is “looking and hoping for some degree of support from both federal and provincial governments.” “It may make sense for us to use a different vehicle that will be able to attract green financing to the sequestration part of this as opposed to utilizing the existing MEG ... capital structure,” he said. Expanding the Alliance The CCUS trunkline would have phased expansion capability to gather captured CO2 from more than 20 oil sands facilities. The first phase would capture volumes of around 8.5 megatons per year from eight facilities, while the second and third phases would expand capacity up to 40 megatons/yr. So far, the alliance comprises just the original five companies, but Little said he “fully expect(s) that we will have the remaining operators join this journey as we go forward.” “By working together, we realized we can drop the cost of this significantly because we can all use a lot of common infrastructure, and we can go faster and we can do it cheaper,” Little said. The net-zero “pathway” also includes strategies around fuel switching to things like clean hydrogen and renewable power sources, greater use of solvents and sharing of infrastructure and piloting some emerging technologies (OD Jul.22'21). Luke Johnson, Houston

Carbon Capture (CCS), Corporate Strategy
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