Imperial Oil Ltd. (IMO.TO) is putting the brakes on development at its $2.6-billion Aspen project in the Alberta energy patch, citing an uncertain business environment.
The Calgary-based company has been a vocal opponent of the provincial government-mandated production curtailment strategy that took effect on Jan. 1. Alberta Premier Rachel Notley introduced the cuts as a means to stabilize prices for heavy Canadian crude.
“This was a difficult choice in light of our final investment decision on Aspen announced last November,” said Imperial Oil President and CEO Rich Kruger in a release. “However, we cannot invest billions of dollars on behalf of our shareholders given the uncertainty in the current business environment.”
Imperial said in November that it would forge ahead with the 75,000 barrel-a-day Aspen project located about 45 kilometres northeast of Fort McMurray. Last month, Kruger said the company is reevaluating its assumptions about Aspen after Alberta’s oil curtailment “introduced new risk.”
First production at the site was expected in 2022. The company said on Friday that the production slowdown will likely result in a delay of at least one year.
“The decision to return to planned project activity levels will depend on factors such as any subsequent government actions related to curtailment and our confidence in general market conditions,” Kruger added.
Imperial said the project would create more than 200 permanent jobs, and employ 700 people during its construction phase. The company estimated the Aspen would generate more than $4 billion in federal and provincial tax revenue, and $10 billion in royalties, over its lifespan.
CIBC analysts Jon Morrison and Trevor Bolland said Imperial’s decision in November to greenlight the project was surprising given the deep discount on Canadian crude and slim hopes for new pipeline capacity.
“We view the delay as a logical one,” they wrote in a research note on Friday. “We don’t consider this update as terribly surprising, especially given the company's vocal stance against curtailments since they were announced.”
Morrison and Bolland also note that a number of M&A opportunities have emerged in Canada’s energy patch that could prove more cost effective for Imperial than moving ahead with Aspen.