(Adds Carr comments, Conservative reaction, paragraphs 3-5, 11-14)
By Nia Williams and Ethan Lou
CALGARY, Alberta, March 9 (Reuters) - The exodus of international players from Canada's costly oil sands is raising fresh doubt over future development prospects for the world's third-largest crude reserves as the region struggles to compete with cheap U.S. shale plays.
Royal Dutch Shell RDSa.L and Marathon Oil Corp (NYSE:MRO) MRO.N sold off billions of dollars in oil sands assets on Thursday, the latest sign that global oil majors are abandoning the region. withdrawals from the oil sands, a sector viewed less than five years ago as one of the world's hottest plays, have cast a pall on Alberta's economic outlook. They are also stoking criticism of federal and provincial environmental policies that are stricter than those of the United States.
The energy sector makes up one sixth of Canada's economy. In Alberta, oil and gas contributes a fifth of provincial gross domestic product and shrinking hydrocarbon investments reduce government revenue while turning up the political heat.
Canada's main crude-producing province was plunged into recession as global crude prices crashed. A permanently weakened energy industry would have far-reaching effects, some analysts said.
"This ... will eventually force the Alberta economy to restructure and diversify its economic engine," said Benjamin Tal, senior economist at CIBC.
The oil sands carry some of the world's highest full cycle breakeven costs and were battered by the global crude price crash that started in 2014. Capital investment in the Canadian energy sector tumbled 62 percent in two years, according to the Canadian Association of Petroleum Producers, and shows little sign of recovering.
Shell Canada President Michael Crothers said the company was selling a large chunk of its oil sands assets to Calgary-based Canadian Natural Resources Ltd CNQ.TO because they did not fit within Shell's international portfolio, while Marathon more explicitly summarised the problem.
"Historically, our interest in the Canadian oil sands has represented about a third of our company's other operating and production expenses, yet only about 12 percent of our production volumes," chief executive Lee Tillman said in a statement.
As well as selling off a 20 percent stake in the Athabasca Oil Sands project, now majority-owned by CNRL, Marathon is buying 70,000 net acres in the Permian basin shale play as it concentrates on higher margin, lower cost U.S. assets.
Shell Canada's Crothers said environmental regulations, such as carbon taxing, had not played a role in its decision to offload oil sands assets, a statement Canada's Natural Resources minister Jim Carr highlighted when he spoke to reporters on Thursday, adding that he was "positive about the future of the oil sands".
Similarly, Environment Minister Catherine McKenna said Canada remained committed to the carbon tax.
But the official opposition Conservative Party said Shell's departure reflected how bad public policy and excessive regulations were driving away investment from Canada.
"This is particularly acute in the context of President Trump in the U.S. planning to aggressively develop energy domestically, planning significant reductions in corporate taxes," said Conservative legislator Shannon Stubbs, the party's spokeswoman on natural resources.
Rafi Tahmazian, senior portfolio manager at Calgary-based Canoe Financial LP, said Canada alone did not have the financial capacity to drive oil sands growth.
"There's no incentive for foreign investment to say let's go into Canada," he said. "The message sent (by government) is we want Canada to become a national park, which is government-operated and non-revenue generating."