CALGARY – Total E&P Canada is putting its Joslyn oilsands project northwest of Fort McMurray, Alta., on hold indefinitely, saying Thursday that the economics aren’t good enough to move ahead.
The decision means 150 jobs will be cut by the end of this year, but CEO Andre Goffart said some of those workers may be moved to other parts of the French energy giant’s global operations.
On a conference call with reporters, Goffart said the challenges Joslyn is facing aren’t confined to that project alone.
“Costs are continuing to inflate, when the oil price — and specifically the netbacks for the oilsands — are remaining stable at best, thus, squeezing the margins. We see that this situation cannot be sustainable in the long term,” he said.
“We know that mining projects are challenging. New mining projects are all megaprojects and they are very capital intensive… There is a clear shift now from the industry on cost discipline and return on investment versus the pace of development.”
Total and the project’s minority partners will now spend time trying to find ways to drive down costs at Joslyn, but there is no timeline for when it may be revived.
“We believe that the best way to unlock this project is not to wait for the price increase, but to work proactively on cost optimization, and that’s what we are doing.”
Goffart says the other partners — Suncor Energy Inc. (TSX:SU), Occidental Petroleum and Inpex Canada — all agree it was best to be put Joslyn on ice for now.
There were no indications Thursday as to whether the ownership structure of Joslyn would change. Currently, Total is operator with a 38.25 per cent stake. Suncor has 36.75 per cent, Occidental has 15 per cent and Inpex has 10 per cent.
The price tag of the project, which received regulatory approval in 2011 after a lengthy process, was most recently pegged at $11 billion. It had aimed to start producing 160,000 barrels a day toward the end of the decade.
Another oilsands venture involving Total, the Suncor-operated Fort Hills oilsands mine, got the go-ahead in October. Fort Hills is expected to cost $13.5 billion and start producing oil in 2017.
“Given the previous timeline, construction on Joslyn would likely have begun prior to the start-up of Fort Hills, potentially further inflating labour costs in the Fort McMurray region. We view the delay of Joslyn as a positive for the industry, eliminating (at least for the time being) yet another stressor on oilsands construction costs,” Desjardins Securities analyst Justin Bouchard wrote in a note to clients.
“Even though our sense is that Suncor did not want to sanction the project until Fort Hills is completed, we wonder if Total’s decision to halt the project has less to do with costs and more to do with not having partner buy-in.”
Total and Suncor have opted to scrap their Voyageur oilsands upgrader altogether. Joslyn, Fort Hills and Voyageur were part of a joint-venture deal Suncor and Total inked in late 2010.