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Analysis: Imperial Oil, Teck double down on Canadian oil sands after others flee

Reuters  |  WINNIPEG, Manitoba 

By Rod Nickel

WINNIPEG, (Reuters) - Two Canadian-based crude producers are looking to double down on their sands investments, betting that new pipelines and cutting-edge technology can improve profitability and reduce environmental damage.

The moves by Ltd and run counter to an exodus of foreign companies from the sands last year.

Calgary-based Imperial, majority owned by , said late on Tuesday it would build its C$2.6-billion project. Construction starts before year-end, with first oil expected in 2022.

Teck has not yet made a final investment decision on its C$20.6-billion project, which is undergoing regulatory hearings.

Both are advancing as pipeline congestion resulted in record discounts on Canadian Imperial and Teck bet it will abate in the next few years.

is expanding its Line 3 pipeline to handle more Canadian crude, and producers hope the Ottawa-owned and Keystone XL pipeline expansions go forward despite opposition.

A stream of foreign companies such as divested Steep price discounts prompted and several others to announce up to 98,400 barrels per day (bpd) in total production cuts last week.

But Imperial said will use solvents and steam to unlock 75,000 bpd, applying new technology to reduce emissions and water use while making extraction more economical.

"We try not to get too excited when times are good and try not to get too depressed when times are bad," said at Imperial's investor day in on Wednesday. "When's the best time to build things? When no one else is building, because you get the highest quality trades and contractors."

Both projects face doubts that they will pay off.

"The challenge with both is projects are typified by high up-front capital," said "And you have to wait years before you generate any revenue."

Teck began regulatory hearings in September for Frontier, an open-pit mine that would produce 170,000 bpd in its first phase, starting in 2026. The company said on Monday would be economical at a range of and rank among the operations due to new technology.

"While we know that use of alternative will increase, we also know that oil will remain an important part of the world mix," Teck said. "The long-term outlook for the global is favourable for a project such as "

Unlike proposed pipelines, and Frontier have the support of aboriginal peoples living nearby. Mikisew Cree First Nation conditionally supports Frontier and hopes to buy a stake, said Melody Lepine, the band's

That support should reassure shareholders, Lepine said. "Teck and Imperial can go back to their investors and say, 'look we have these agreements with indigenous communities.'"

Mikisew and another band invested last year in a Suncor storage facility.

Some Teck investors remain skeptical that the should be in the oil business, said Teck owns part of a Suncor mine.

"Do you double down? Do you divest? It's an open question," he said.

The odds appear longer for Teck's higher-cost Frontier to succeed than Imperial's Aspen, said Manash Goswami, senior at First Asset ETFs, which owns Imperial shares.

The Teck Frontier project "doesn't make any sense," Goswami maintained. "It's hard to see, unless go materially higher, another project getting sanctioned."

But a one-time industry opponent now sees a future for crude.

Chief of Athabasca Chipewyan First Nation recently backed Frontier. He reasoned that oil is not going away and he can better protect community interests from the inside.

"If people are saying the oil sands are going to die off, I imagine they're going to park their vehicles and start walking. I don't think that's going to happen anytime soon."

($1 = 1.3057 Canadian dollars)

(Reporting by in Winnipeg, Manitoba; Editing by David Gregorio)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Thu, November 08 2018. 00:02 IST