Oil sands: Oil sands investors are showing their short memories. The stampede to the initial public offering of Athabasca Oil Sands is a tribute to the allure of Canada’s extra heavy oil. Athabasca priced at the high end of its range and raised $1.35 billion, twice its initial goal. Yet it was only two years ago the sector was hit hard by the economy. Greater bullying from Venezuela and its ilk make it all too easy to forget the risks of another price slump.
Practically no energy portfolio is complete without exposure to Canada’s oil sands. The country accounts for half the world’s reserves that aren’t locked up by national oil companies of foreign governments. Including oil sands, Canada’s stash is second only to Saudi Arabia’s — around 175 billion barrels.
The Dudley Do-Right factor also helps. Canada’s stable and predictable government is a rarity in the oil business. True, the sand-rich province of Alberta irked producers in 2007 by demanding an extra cut from the sharp rise in oil prices. But this was nothing compared to the political risks energy companies have become accustomed to in places like Nigeria and Venezuela.
Even so, Athabasca investors seem merely to be swapping potential troubles.
The IPO valuation — at about $1 per contingent barrel — looks in line with the industry average as calculated by research firm IHS Herold. But there is the looming possibility of environmental controls. Despite the industry’s best efforts, extracting from oil sands generates about 10 percent more carbon dioxide than conventional oil. That could make the burden of greater regulation costly. The economic hazards look dangerous too. Oil sands stop being economical south of $65 a barrel of oil.
That proved especially painful for this corner of the business when the price of oil fell in 2008 from $147 to below $35. Athabasca rivals Suncor Energy and Canadian Natural Resources lost 75 percent of their value while more diversified oil majors fell by much less. Some C$90 billion of the country’s sand projects were shelved. If the economy hits another serious bump, oil sands investors are likely to suffer the worst.