Total Joslyn Oil-Sands Investment Delayed, Jobs Cut on Costs

May 30, 2014 4:53 pm ET

(Updates with closing share prices in fifth paragraph.)

May 30 (Bloomberg) -- Total SA will cut 150 jobs at its Joslyn oil-sands project in Canada and delay a final investment decision as costs escalate and the company and partner Suncor Energy Inc. look for ways to make the project more profitable.

“We just need to find ways to go further in cost effectiveness,” Andre Goffart, the president of Total’s Canadian business, said on a conference call yesterday. Oil- sands mining projects including the C$11 billion ($10.1 billion) Joslyn venture are “very capital intensive projects.”

Oil-sands miners have struggled with rising costs in northern Alberta because of labor shortages and distance from equipment suppliers. Imperial Oil Ltd., the Calgary-based producer majority owned by Exxon Mobil Corp., last year boosted the cost of its Kearl project by 18 percent.

The decision on Joslyn will save Total, France’s largest oil producer, $3.9 billion in the next four years, Oswald Clint, a London-based analysts at Sanford C. Bernstein & Co. who rates the stock the equivalent of buy, wrote in a note today. It signals Total’s focus on reducing capital expenditures to boost returns, he said.

While the move “reflects a higher cost environment, it is solid evidence of capital discipline and a drive to improve returns,” Clint said in the report. “We much prefer Total’s strategy of reduced capex and increasing returns to the previous focus on production growth.”

The shares fell 0.5 percent to 51.48 euros at the close in Paris. Calgary-based Suncor rose two cents, or less than 0.1 percent, to C$41.73 in Toronto.

Industry Concern

Total Chief Executive Officer Christophe de Margerie has said the oil industry’s “life is at stake” if costs aren’t brought under control. The explorer decided to go ahead with the Kaombo project offshore West Africa last month after shaving $4 billion off development costs to bring them down to $16 billion.

De Margerie has pledged to lower capital spending to $26 billion this year from a peak of $28 billion in 2013. Total also plans to raise output to 2.6 million barrels a day by 2015 and 3 million barrels a day by 2017, from 2.3 million last year.

Total and Suncor, Canada’s largest oil producer by market value, last year canceled their Voyageur upgrader because of rising costs. The partners in October announced they would go ahead with a C$13.5 billion Fort Hills venture that will produce 180,000 barrels a day within 12 months of startup in 2017. Total, based outside Paris, purchased its oil-sands stakes in 2010.

Efforts Continue

Goffart declined to provide a timeline for a final decision on the project, where cost-reduction efforts will continue, he said on the call. The company will try to find alternative positions for the employees affected by the decision, he said.

Total has no plans to sell its stake in the project, Goffart said. Work at the company’s other oil-sands sites, including the Surmont assets, will continue as planned, he added.