January 15, 2020 (IEEFA North America) – The Joint Review Panel (JRP) approved Teck Resources’ proposed Frontier oil sands mine, now under federal government review, based on inflated oil price estimates of $95/barrel or better “for years to come,” which is “misguided and reckless,” according to a report released today by the U.S.-based Institute for Energy Economics and Financial Analysis (IEEFA). Further, in a presentation to shareholders last month, Teck Resources lowered its estimates revealing that oil prices will be in the $60 to $70/bbl range for “decades to come.”
The IEEFA report: Teck Resources’ Frontier Oil Sands Project Shows Reckless Disregard for Financials, found that during its administrative hearings, the JRP ignored, or rejected, ample evidence that predicted more modest pricing of $60-$70/barrel.
“THERE IS NO WAY THAT THE FRONTIER OIL SANDS CAN PRODUCE THE LEVEL OF REVENUES ESTIMATED IN TECK’S APPLICATION,” said the report’s lead author Tom Sanzillo, head of finance at IEEFA. “As it stands, the project is so economically unviable that there are likely to be fewer and less stable jobs created by this investment than promised.”
In the application, it was anticipated that the project would produce $54 billion in royalties and taxes, $11.8 billion in federal corporate taxes, and $68 million in local property taxes. It was expected to support 2,500 permanent employees.
Once fully operational (in 2037), the Frontier Sands are expected to produce 260,000 barrels of oil per day (bpd), or 3.2 billion barrels over a 41-year life cycle. Teck estimates that the cost of the project will be $20.6 billion, with most of the capital expended during Phase 1 of the project (2020 through 2026).
THE SUPPOSED BENEFITS OF THE PROJECT WERE BASED ON REVENUES SUPPORTED BY OIL PRICES OF $95/BARREL OR GREATER. Current trends of fossil fuels under-performing and glutting markets are expected to continue as fracking and renewables provide steady competition.
“Oil sands are a relatively new ‘core’ asset for Teck. The company has a portfolio of copper, zinc, coal, and other minerals. The change in oil price estimates raises troubling questions,” said energy finance analyst and report co-author, Kathy Hipple.
“Canada has already seen what occurs when oil projects planned upon faulty assumptions go forward: At best, investors lose money, at worst, Canadian taxpayers pick up the tab,” the report concluded.
Tom Sanzillo is IEEFA’s director of finance.
Kathy Hipple is an IEEFA financial analyst.
Vivienne Heston (firstname.lastname@example.org), +1 (914) 439-8921
About IEEFA: The Institute for Energy Economics and Financial Analysis (IEEFA) conducts research and analyses on financial and economic issues related to energy and the environment. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy. www.ieefa.org