Total suspends $11B Joslyn oilsands project

In November 2013, Total E&P Canada submitted applications to the relevant regulatory agencies in Alberta to increase the mine pit size and boost production capacity to 157,000 barrels a day at its Joslyn North mine project, 65 km northwest of Fort McMurray. 

But in a conference call just seven months later, Andre Goffart, CEO of the French oil major’s Canadian unit, said the $11-billion project was being shelved indefinitely after efforts to trim costs were unsuccessful. 

“We have worked since 2011 . . . with a view to reduce the costs of the project to prepare for sanction,” Goffart told reporters on the May 29 call. “Unfortunately [there are] not yet sufficient economics to support a final investment decision.”

Rising industry costs and challenging market conditions were large contributors to making the project untenable.   

“Joslyn is facing the same challenge most of the industry worldwide is, in the sense that costs are continuing to inflate when the oil price and specifically the netbacks for the oilsands are remaining stable at best-squeezing margins,” Goffart said. (Netbacks are what you get when you add up the cost of production versus the price of a barrel of oil.)  

Total SA (NYSE: TOT) controls 38.25% of the troubled oilsands project. Its partners are Suncor Energy (TSX: SU) (36.75%), Occidental Petroleum (NYSE: OXY) (15%) and Japan’s Inex Corp. (10%).

The suspension of design and engineering work will likely result in the lay off of up to 150 staff by the end of 2014, Total said. The company has not offered any timeline for a final investment decision. Nor did the company send out a press release announcing the cancellation, choosing instead to unveil the news via a conference call referred to as a project update. The conference call is not available on its website, according to a company spokesman.

It took nearly six years from the time Total acquired the Joslyn lease in 2005 until the project received the final regulatory approval (Order in Council) from the federal government in December 2011. The company acquired the project via its $1.7-billion takeover of Deer Creek Energy.

The project envisioned open-pit mining of the oilsands, followed by a separation step to remove the bitumen by mixing the sands with hot water (primary separation) and then with solvent (secondary separation). The project was designed to recycle 85% of the water used in the separation process.

While Joslyn’s owners have all agreed to put the project on ice, Total and partners Suncor Energy and Teck Resources (TSX: TCK.A; TSX: TCK.B; NYSE: TCK) are proceeding with the development of the Fort Hills project, 90 km north of Fort McMurray. Fort Hills has a projected mine life of more than 50 years and is expected to produce its first oil by the fourth quarter of 2017.

The suspension at Joslyn certainly isn’t the first such decision in the oil patch. In March 2013, Suncor Energy pulled the plug on its $11.6 billion Voyageur upgrader project due to soaring capital costs. At the time Suncor’s CEO Steve Williams said market conditions had changed, challenging the economics of the project.