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Statoil shift to offshore over oilsands improves market access, say analysts

Oilsands companies shifting their investments to offshore wells on Canada's East Coast are taking on more exploration risk but gain the ability to ship their product anywhere in the world.

Access to customers willing to pay top prices a big advantage for offshore drillers

Norway's Statoil announced its Canadian branch will drill two offshore exploratory wells this summer roughly 500 kilometres east of St. John's, N.L.

Oilsands companies shifting their investments to offshore wells on Canada's East Coast are taking on more exploration risk but gain the ability to ship their product anywhere in the world — at the best prices and without waiting for pipelines, analysts say.

Earlier this week, Norway's Statoil announced its Canadian branch will drill two offshore exploratory wells this summer in the Flemish Pass Basin near the Bay du Nord discovery roughly 500 kilometres east of St. John's, N.L.

Statoil's news came just over a week after the close of a deal worth up to $832 million to sell all of its northern Alberta oilsands assets — including its 24,000-barrel-per-day steam-driven Leismer project — to Calgary-based Athabasca Oil.

In an interview Thursday, Statoil Canada president Paul Fulton said Canada fits with the parent company's strategy to fund "safe, high-volume projects [with] low carbon" emissions. He repeated that its exit from the oilsands was a "commercial" decision that had nothing to do with criticism from environmentalists in Norway.

"The upstream emissions from potential projects out there [on the East Coast] are very good so we see that as a good fit and it fits into the competitive portfolio of Statoil globally," Fulton said.

Analysts, however, say criticism at home had to have been a factor in the sale, which many characterized as a bargain for Athabasca. Statoil has said it would take a loss of $500 million US to $550 million US on its oilsands investments.

"Statoil in particular was facing some political pushback from Norway as a state-owned company operating in the oilsands," said Nathan Nemeth, an upstream research associate at Wood Mackenzie.

A feared shortfall in pipeline access, along with low oil prices, was cited by Shell Canada in 2015 when it announced it would shelve its proposed 80,000-barrels-per-day Carmon Creek thermal oilsands project in northwestern Alberta.

Big prices, big advantage

Kevin Birn, senior director for IHS Markit, said access to customers willing to pay top prices is a big advantage for offshore drillers.

"You fill up a tanker from your platform and you send it to whoever is willing to pay the best price for it," he said.

"Whereas in Western Canada, the history has been you put it in a pipeline and it goes south. Those prices are subject to transportation costs down to the Gulf Coast and you have a lower price as a result."

Earlier this week, Calgary-based Husky Energy confirmed it had shipped its first oil to an unnamed customer in China from the White Rose project off Newfoundland.

"The pieces of the puzzle fell together for the sale," spokesman Mel Duvall said in an email. "Favourable freight rates made it economically attractive."

Nemeth said oilsands and offshore projects both face long planning phases, high upfront costs and complicated construction issues — but the payback of capital for offshore comes much more quickly because of flush production from freshly drilled wells.

Oilsands production, on the other hand, is steady and predictable for decades without the declines seen as oil reserves are gradually pumped out of offshore wells.

Nemeth said the two businesses actually complement each other, which is why big Canadian oilsands companies such as Suncor Energy, Canadian Natural Resources and Husky also invest in offshore drilling around the world.

Fulton said Statoil's commitment to Atlantic Canada, where it produces just under 20,000 barrels of oil per day through several partnerships, extends beyond its current program and will continue even if its wells drilled this summer aren't successful.

Statoil is a major player in Newfoundland's offshore oil sector with a nine per cent stake in the Hebron project, a five per cent share in Hibernia and a 15 per cent stake in Terra Nova.

In 2015, the company bought six exploration licenses in the Flemish Pass Basin and its first two licenses for offshore Nova Scotia.

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