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Report Warns Oil Sands Investors of Toxic Wastewater's Financial Risk

Government Mandated Clean-Up Could Wipe Out Earnings of Biggest Producer

By David Sassoon

Mar 3, 2010

A new report from , a financial research firm, warns investors that some leading oil sands companies may be particularly exposed to financial risk from toxic waste water liabilities.

The report attempts to quantify the true cost of cleaning up billions of barrels of contaminated water resulting from the mining and refining operations of leading producers of oil sands crude. It was quietly released in December to RiskMetrics' private clients, and unveiled more publicly last week in a . Titled "Oil Sands Tailings Pond Remediation Costs Understated," the report shows a handful of companies to be at a financial disadvantage because of their exposure to waste water remediation liabilities.

For example, for Suncor, currently the largest producer in the oil sands, water remediation could cost almost $2 million a week, or $104 million a year, according to RiskMetrics. That would erode the company's annual net income by 26 percent according to RiskMetrics' low-cost analysis. In the worst case, RiskMetrics says, the cost of cleaning up toxic waste water could completely wipe out Suncor's earnings.

In contrast, the super majors, like Exxon and Chevron, can easily absorb the clean-up costs because of their enormous size and diversified holdings.

"Many investors were really glad to see the report," Yulia Reuter, the author, told SolveClimate. "They have known that tailing pond remediation was a problem. Now, they can see something specific that quantifies the financial risk."

Reuter explained that oil sands producers have been setting aside debt obligations on their balance sheets in the knowledge that they would one day have to pay the cost of waste water clean-up. Her analysis, however, reveals that the set-aside calculations have been insufficient to cover the full cost and that ongoing clean-up could substantially erode earnings of the most overexposed companies.

Each barrel of oil that comes out of the oil sands requires as much as four barrels of to extract, water that is contaminated with toxic tailings in the process and disposed of in giant containment ponds. Since February 2009, companies have been under government orders to clean the toxic tailings out of the water left behind. Alberta's Energy Resources Conservation Board (ERCB) issued , which requires oil producers to address a problem that has been growing without a solution for decades. Existing "tailings ponds" now cover , including once-pristine boreal forest.

The directive requires producers to process fluid tailings, transform them into solid "fines" — mineral solids with particle sizes equal to or less than 44 micrometers — and deposit them in dedicated disposal areas that must become trafficable within 5 years. A first baseline survey is due from all oil sands developers by the end of this September, followed by a gradual phase-in over three years of the directive's regulations.

Non-compliance could theoretically result in a shut-down of mining and refining operations. However, observers believe that would be highly unlikely. The ERCB has historically enjoyed a cozy relationship with the oil sands industry — a lynchpin of the Canadian economy. If producers go into default, they more likely would face a fine or restrictions on permits for expanded operations, Reuter said. Compliance with Directive 74 is negotiated on a case-by-case basis.

Super Majors Have an Advantage

The new regulatory measures are unlikely by themselves to slow the growth of oil sands production, already about . That's because the super major oil companies can absorb the cost of cleaning-up toxic waste water without recording a noticeable erosion of profits, according to the RiskMetrics analysis.

Sms Messages

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Sms Messages

Excellent Report by financial research firm please keep sharing latest information.

bollywood

this company is not providing good servises,

slowly but surely

It seems that there are fixes for the tailings ,but it would put a lot of people out of work, and that bwould be the end of the pumps,ponds, pipes. We are working on a licencing agreement with a fella that has a product that works extremely well in seperating immediately the fines in the tailing pond mix. He has shown all of the top producers how it works, and all that they have done is try to reverse formulate the secret remedy for themselves. Instead of purchasing or licencing the product so that that werent any tailing ponds period. As soon as i have an licencing agreement in placed i will atttempt to go back and bring Native People of the Areas with me for demonstrations that work.we have a system set up with one of the tarsands producers now and are reclaiming 225 brls of sop oils.

"The report shows a handful

"The report shows a handful of companies to be at a financial disadvantage because of their exposure to waste water remediation liabilities." It is obvious that if the companies have not taken the social and environmental liabilities into account, they will be exposed to financial loses due to the lack of their farsightedness. But, for the prudent, it would be a normal company affair.

The company should have

The company should have taken in to account the costs from toxic waste water liabilities in their company's balance sheets to preempt the risk of the financial loses. Though the size of the company does matter in meeting such liabilities, It would have been an avoidable crisis, had proper budgetary rules been followed. However the company should start taking corrective measures to face the crisis.

It would be really

It would be really interesting to see this report somewhere online. I will try to ask RiskMetrics as David suggested. Of course it is nice that possible investors are warned. There are many problems with toxic materials and rivers, seas and oceans. I remember reading about one company which have made many mistakes regarding toxic waste in continental waters. I think that everybody knows that situation near the Mexico when oil had gone in the water of the ocean. I just hope that all those processes which make dirt will stop someday. We must save our climate. Thanks for the nice article by the way. Without you I would never known that such a report exists. Oh and I will be waiting for more nice ones from you in the nearest future too.

It seems that there are

It seems that there are fixes for the tailings ,but it would put a lot of people out of work, and that bwould be the end of the pumps,ponds, pipes. We are working on a licencing agreement with a fella that has a product that works extremely well in seperating immediately the fines in the tailing pond mix. He has shown all of the top producers how it works, and all that they have done is try to reverse formulate the secret remedy for themselves. Instead of purchasing or licencing the product so that that werent any tailing ponds period. As soon as i have an licencing agreement in placed i will atttempt to go back and bring Native People of the Areas with me for demonstrations that work.we have a system set up with one of the tarsands producers now and are reclaiming 225 brls of sop oils.

It seems the full report

It seems the full report itself is not publicly available? Just the Powerpoint presentation and the one hour webcast. Is this impression correct, and will the report remain private?

We heard the webcast and

We heard the webcast and subsequently requested the full report, and RiskMetrics obliged. I suggest you ask RiskMetrics directly whether they plan to publicly post the full report.

BP and Shell investor revolt over tar sands

The resolutions mentioned (shareholders of both BP and Royal Dutch Shell filed resolutions for consideration at upcoming annual meetings, asking for a review of the financial risks posed by oil sands development) are trying to get BP and Shell to report on the risks of tar sands, including those arising from pollution.

There is now an online facility available to take action at:

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