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CALGARY, Alberta (Reuters) - Canada's energy sector has fallen out of favor with international oil majors, who are scaling back ambitions and walking away from reserves in the ground there to focus on lower-cost and higher-margin opportunities elsewhere.
Billion-dollar bets on Canada's oil sands went sour this week for Exxon Mobil Corp (XOM.N) and Conoco Phillips (COP.N). Between them, the two companies erased from their books nearly 5 billion barrels of bitumen, the heavy, viscous oil found under Alberta's boreal forest. This has wiped about $250 billion worth of oil from their reserves.
Conoco has put $2 billion of Canadian natural gas assets on the block.
The companies joined the list of foreign players to take a hit in a Canadian energy patch where a two-year slump in global oil prices has discouraged the high investments needed to get projects off the ground.
While crude prices have recovered to above $50 a barrel from a low of $26 a year ago, that is not enough to make Canada's oil sands profitable. Even some of Canada's conventional energy plays are expensive at current crude prices.
Canadian producer Husky Energy Inc (HSE.TO), owned by Hong Kong billionaire Li Ka-shing, is weighing the sale of some Eastern Canadian offshore crude assets, people familiar with the matter told Reuters.
The oil sands have caused energy companies the most pain.
Devon Energy Corp (DVN.N) Chief Executive Officer Dave Hager summed up the problem this month when discussing the Pike oil sands project, which awaits a company decision later this year.
"We like the project a lot, but ... it's a little bit lower return than our well-oriented programs here in the U.S.," Hager told analysts on an earnings call.
Hager cited capital costs and uncertain future prices as factors behind the wariness of sinking funds into projects that take four years to build. Shale plays need less investment, produce cheaper oil and often provide a fatter return within months.
President Donald Trump is also expected to loosen U.S. regulations for oil and gas companies, while the Canadian government has been planning a carbon tax.
Statoil ASA (STL.OL) sold its oil sands project and leases to Calgary-based Athabasca Oil Corp (ATH.TO). CNOOC-owned (0883.HK) Nexen shut down its oil sands upgrader. Royal Dutch Shell RDsa.L abandoned its 80,000 barrel per day Carmon Creek project, taking a $2 billion write-down.
"The oil sands are not as sexy as they used to be," said GMP FirstEnergy analyst Martin King. "The focus is on the United States - there are more immediate returns and lower drilling costs."
In the days of $100 a barrel crude, and before the U.S. shale revolution, the oil sands were a red-hot play for investors, offering huge reserves, low decline rates and a stable political climate.
Between 2005 and 2015 foreign direct investment in Canada's oil industry more than doubled to C$130 billion ($99.19 billion) from C$50 billion, according to Statistics Canada data. That slowed in 2015 as the crude price rout deepened.
"You would assume it's still slowing down based on lower prices," said economist Carlos Murillo of the Conference Board of Canada.
RS Energy Group analyst Rob Bedin noted that Suncor Energy's (SU.TO) Fort Hills, the last of the oil sands mega-projects, needs U.S. crude prices around $100 a barrel to break even, compared with $40-$45 a barrel for shale plays in the Midland Basin, Texas.
While oil sands growth is expected to slow dramatically, production is not expected to drop. Projects there, once built, are viewed as a useful addition to companies' portfolios. Day-to-day operating costs are reasonably low and they produce for decades.
Two years ago, producer forecasts of 2026 oil sands production totaled 6 million bpd, according to RS Energy research, up from 2.5 million bpd currently.
Last year producers dropped that 2026 forecast to 5 million bpd, but RS Energy analysis suggests 3.5 billion bpd is more realistic once company finances are taken into account.
The fate of growth in the oil sands is primarily in the hands of the domestic Canadian producers like Suncor Energy and MEG Energy (MEG.TO), which are still intent on developing their back-yard crude resource through improved technology and carefully planned small-scale expansions.
Canadian reserve reporting rules, which allow the use of price forecasts from reserve evaluation firms, help domestic oil sands producers maintain a more positive outlook. The United States requires producers to report reserves based on last year's prices.
Still, there are concerns even for oil sands specialists. These include low crude prices, environmental opposition to building new pipelines and government carbon emissions caps.
Lack of pipeline capacity has in the past left crude bottlenecked in Alberta, but now that three major projects are finally moving forward there are doubts about whether there will be enough volume to fill them.
Enbridge Inc (ENB.TO) CEO Al Monaco said two pipelines should suffice based on the current supply outlook, and the latest cuts in reserves may make it harder for projects like TransCanada Corp's (TRP.TO) Keystone XL to find enough shippers.
"One pipeline is within (oil sands) projects already under construction," said University of Alberta energy economist Andrew Leach. "Where it gets more speculative is if you get beyond one pipeline then your case starts to depend on some incremental growth into the next decade, which is not sanctioned and would not be on anyone's reserve books at this point."
($1 = 1.3106 Canadian dollars)
Editing by Simon Webb and David Gregorio