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Imperial Oil Ramps Down Aspen Project Amid Market Uncertainty

Zacks Equity Research
Investors need to pay close attention to Anadarko Petroleum (APC) stock based on the movements in the options market lately.

Imperial Oil IMO has decided to decelerate development of Aspen in situ oil sands project amid pipeline crisis and market uncertainty in Canada.The integrated energy company gave a green signal to the C$2.6-billion project in November 2018 with intent to commence production by 2022. The Aspen project is likely to produce 75,000 barrels of oil per day as well as generate direct and provincial revenues of more than C$4 billion along with C$10 billion in royalties for Alberta.

The project is likely to be delayed by at least a year due to intervention by Alberta government along with other competitive issues. Notably, the project was sanctioned before the government of Alberta announced its production curtailment program in response to the widening crude price differentials. The province issued a mandate on Dec 2, 2018 to remove 325,000 barrels of oil production per day from the market beginning in 2019.

While the government’s intervention narrowed the differentials (from $44 a barrel in December to near about $10 currently), the scenario is still uncertain amid the pipeline pinch. The delay of Enbridge’s ENB Line 3 project along with the latest court rulings for TransCanada’s TRP Keystone XL pipeline is making it difficult for companies to balance output levels with pipeline capacity without mandated cuts.

As it is, extraction of oil from oil sands is a high-risk strategy considering the extra costs associated with it compared with production from conventional oil wells. As such, Imperial Oil intends to ramp up activities only on subsequent favorable government actions and improving market conditions. Earlier, the company projected to spend $800 million in Aspen in 2019. However, the firm is uncertain about its investment in the project following the ramp down.

While Imperial Oil currently carries a Zacks Rank #3 (Hold), investors interested in the energy space can consider stocks sporting a Zacks Rank #1 (Strong Buy) like Antero Resources Corporation AR. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The strategic position in the low-risk and long reserve-life shale gas acres of Appalachian Basin will boost Antero’s operations. The company expects production to witness a CAGR of 10-15% from 2020 through 2023.Encouragingly, the company plans to achieve the production growth through conservative capital expenditure, which is likely to boost profits and cash flows. 

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