Teck Resources Ltd. [TECK.B-TSX, TECK.A-TSX; TECK-NYSE) has withdrawn its application to develop a $20 billion oil sands project in Alberta saying that it can see no constructive path forward for a resource development of this type.
The surprise announcement comes just days before the Trudeau government was scheduled to make a decision on whether or not to green light the massive Teck Frontier Project
In a letter to the Canadian government, Teck CEO Don Lindsay explained that the decision to withdraw its application from the Federal Environmental Assessment Process was not taken lightly and will require the company to take a $1.13 billion write-down on the value of the project.
He said global capital markets are changing rapidly and investors and customers are increasingly looking for jurisdictions to have a framework in place that reconciles resource development and climate change, in order to produce the cleanest possible products.
“This does not exist here today and, unfortunately, the growing debate around this issue has placed Frontier and our company squarely at the nexus of much broader issues that need to be resolved. In that context, it is now evident that there is no constructive path forward for the project.”
As Teck was making the announcement, Ottawa was struggling to end railway blockades by Indigenous protestors who are sympathetic to Wet’suwet’en hereditary chiefs in British Columbia who are opposed to Coastal GasLink pipeline. After failing to find a resolution to the dispute, Prime Minister Justin Trudeau said last week that the barriers would have to come down.
The proposed Frontier Project is located between Fort McMurray and Fort Chipewyan in northeastern Alberta. If it were to proceed, it would rank as one of the largest ever oil sands projects. The $20 billion truck and shovel oil sands mine was expected to produce 260,000 barrels per day of bitumen, while delivering $55 billion in provincial royalties and taxes over a projected lifespan of 41 years. It was also expected to generate $12 billion in federal income and capital taxes.
However, in deciding not to proceed with the application, Teck likely weighed the potential public backlash as well as the view among analysts that future development was a low probability anyway. This is due to economic challenges, weak returns from Teck’s Fort Hills oil sands project in Alberta, lack of pipeline capacity in Canada, and Teck’s growing focus on copper.
Teck also indicated that the decision to withdraw its application was also driven by the lack of clarity in relation to climate change policy in Canada
“The nature of our business dictates that a vocal minority will almost inevitably oppose specific developments,” Lindsay said in his letter to Ottawa. “We are prepared to face that sort of opposition. Frontier, however, has surfaced a broader debate over climate change and Canada’s role in addressing it. It is our hope that withdrawing from the process will allow Canadians to shift to a larger and more positive discussion about the path forward. Ultimately that should take place without a looming regulatory deadline.”
The Frontier Project was expected to cover an area about half the size of Edmonton, potentially adding 4.1 mega-tonnes annually to Canada’s greenhouse gas emissions. This at a time when Canada is trying to reduce its carbon impact.
On Monday, Teck’s Class B common shares fell 4.15% or 60 cents to $13.85 on volume of 2.6 million. The shares are currently trading in a 52-week range of $14.33 and $34.32.