It’s Lonely Being Kearl

Imperial Oil’s greenlighting of the Kearl oilsands project on May 25 should not be viewed as an inflection point for oil and gas investment. It’s a huge project and a welcome chunk of work for northern construction hands and contractors, but we’re not about to see the energy industry and investors pile back into the oilsands. As usual, Imperial is running against the herd.

I remember interviewing then-chairman, president and CEO Tim Hearn in August 2005, just as Imperial was moving its head office to Calgary from Toronto. At a time when oil prices and share prices were headed steadily up and companies were falling over each other to announce projects that could never be built in a common time frame, here was Hearn fretting about a possible return to $30 oil and saying the company didn’t have enough cost certainty to commit to either Kearl (which didn’t have its regulatory approvals yet) or the Mackenzie gas pipeline. At a time when as many as nine new oilsands upgraders were announced for northern Alberta to much fanfare, Imperial was already saying it had no plans to build one for Kearl.

Whatever you think of Imperial’s (or its parent, ExxonMobil’s) environmental stance or record of corporate citizenship, you have to admire its good business sense, long-term thinking and willingness to be a contrarian actor, which we are seeing once again with the Kearl announcement. By giving Kearl the go-ahead now as opposed to a year ago (it was approved by federal and provincial regulators in 2007), Imperial is saving as much as 40% on labour and materials costs and you can bet the company will stick pretty close to its $8-billion budget for the first phase. Plus, it will almost certainly be the only major new capacity to come onstream in the non-nationalized world in 2012, when we quite possibly could be into a new, higher and more prolonged oil price run-up.

Good on Imperial. Good on the workers in Fort McMurray. Good on the Alberta treasury, whose other resource revenues are tanking. And if Kearl, along with existing oilsands projects, runs into a raft of punitive new emissions regulations emanating from the United States, my guess is Imperial, of all companies, has a backup plan. As Hearn told me four years ago, “Our business is about dealing with hard and difficult things. That’s what we do.”

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