Another setback for West White Rose as Suncor records $425M impairment charge
Suncor says Husky acquisition by Cenovus has 'cast significant doubt' on future of expansion project
There's more financial pain for one of the oil companies involved with the half-finished and highly precarious West White Rose expansion project in Newfoundland and Labrador.
Suncor Energy announced Monday that it will take a $425-million impairment charge on its share of the existing White Rose oil field assets and the $3.2-billion expansion project that is stalled at 60 per cent complete.
In simple terms, it means the company, which owns roughly a quarter of the project, believes the value of its share has reduced dramatically since the global pandemic sent shock waves through world oil markets.
"Someone made an assessment that they don't have the asset they thought they had," said Memorial University economist Wade Locke on Tuesday. "It does not bode well for the project going forward."
'Early days' for combined companies, says Husky
The non-cash after-tax impairment charge was recorded in the fourth quarter of 2020, according to a Suncor news release.
What's more, Suncor says the future of the expansion project remains in jeopardy, believing the acquisition of lead White Rose partner Husky Energy by rival Cenovus Energy "has cast significant doubt on the future of the West White Rose project."
The Cenovus-Husky deal closed Monday, with Cenovus reporting it will give details of its 2021 capital budget plans later in January. However, Husky confirmed in October that full-scale construction on the White Rose expansion will not resume in 2021.
"The joint venture continues to evaluate its options beyond 2021 and no decisions have been made," a spokesperson for Husky, which is now a wholly owned subsidiary of Cenovus, said Tuesday of the West White Rose project.
As for Husky's takeover by Cenovus, the spokesperson said, "It's early days for the combined company, and we'll provide more insight on our business plans throughout the course of the year."
More writedowns expected
Husky is expected to disclose its fourth quarter and 2020 earnings in mid-February, and observers are expecting an even larger impairment charge, since Husky owns 72.5 per cent of the existing assets, and 69 per cent of the West White Rose expansion.
Newfoundland and Labrador's energy corporation, Nalcor, is a five per cent owner of West White Rose. Up to the end of July, according to the provincial government, Nalcor had invested $110 million in the project.
Husky suspended construction work on the fixed wellhead platform — which will be tied back to the SeaRose — last March in response to the COVID-19 pandemic, and resulting uncertainty in oil markets. The decision shut down major construction sites in Placentia and Marystown, left hundreds of people without jobs, and raised big questions about the future of the oil field, which was the third to become active in the offshore.
Husky had petitioned the federal and provincial governments to buy an equity stake in the project in order to save it, but the idea was rejected by politicians.
But more than $41 million in public money from Ottawa has gone to the project from a $320-million oil industry recovery fund. This money is being used primarily to reactivate construction activities in Marystown, where several topside modules are being built.
The White Rose oil field is located in offshore Newfoundland and began production in late 2005 with the SeaRose FPSO — floating production, storage and offloading — vessel. It has since completed several expansions, but saw production drop substantially to 6.3 million barrels in 2019 after operations were interrupted by an oil spill.
The West White Rose expansion is intended to extend the life of the oil field by 14 years, with access to an additional 200 million barrels of oil.
It's not clear how long the field will continue to operate without the expansion.
In its press release, Suncor said talks with Husky and various levels of governments are ongoing to determine the future of the project.