For example, the cost to Exxon and Chevron of cleaning up their waste water — based on 2007 production levels — would amount to three-tenths of one percent of net income in the high-cost scenario.
The analysis, in essence, shows that the super majors have a financial edge in oil sands development moving forward. They can absorb the increased costs on their balance sheets and income statements without causing concern among shareholders. The smaller, pure-play oil sands producers, like Suncor, Imperial Oil and the Canadian Oil Sands Trust, will face the greatest risk of stock valuations being negatively impacted by compromised earnings or balance sheets that are over-leveraged.
The RiskMetrics quantification may present good news for environmental advocates. The analysis demonstrates that the sector as a whole can accomplish the massive clean up using bioremediation, the most effective technology, without roiling financial markets and spooking shareholders.
The report also makes clear that the clean-up is vital for the oil producers, as well. The oil sands industry — one of the largest energy development undertakings on the planet — will collapse unless the region's water supply is protected from both overuse and toxic pollution.
The Athabasca watershed, already compromised by oil sands development, cannot tolerate the extraction of almost five million of barrels of fresh water that the Canadian Association of Petroleum Producers estimates could be needed every day for mining operations alone by 2014, the report states. It would exceed the withdrawal limit currently imposed by the environmental regulator. The river provides the lifeblood of one of the largest watersheds in the world, spanning 36,000 square miles of Canadian wilderness, and the oil sands industry is equally dependent upon the natural resource.
Oil sands producers have also been under growing international pressure to lower the outsized of their unconventional oil extraction. The oil sands are the primary reason Canada is failing to honor its Kyoto commitment to reduce its greenhouse gas emissions and instead has substantially increased them.
Last month, shareholders of both BP and Royal Dutch Shell for consideration at upcoming annual meetings, asking for a review of the financial risks posed by oil sands development. A coalition of unions, pension funds and faith groups fear the impact of carbon costs and reputation damage from environmental degradation will be high.
The RickMetrics analysis indicates that waste water clean-up is a more material financial issue than greenhouses gases.
Battle for World Opinion
The waste water issue has been one major reason the oil sands industry has suffered in the battle for world opinion. The tailings ponds drew global attention in 2008 when more than landed on a toxic pond at one of mines, became coated in oil and mining waste and died. The company is now on trial for allegedly violating Alberta's Environmental Protection and Enhancement Act. The deaths also underscored for the public just how dangerous the water is: It is contaminated by phenols, arsenic, mercury, carcinogens such as polycyclic aromatic hydrocarbons and naphthenic acids.
The oil sands industry had assumed these compounds would settle out of the water, and about 35 percent of the particles do end up on the bottom of the ponds within three to five years; but most of the toxic pollution remains suspended in the water as fine tailings which take decades to settle unless they are treated, Reuter said.