Their expansion plans have been dashed as some struggle to even cover operating costs
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Canadian investors might be happy that oil prices have recovered and stabilized at roughly US$50 per barrel. But for many producers in Canada’s oil sands, that’s not enough.
For many mid-size oil sands producers — those that produce less than 100,000 barrels of oil daily — oil prices have been too low for start-up costs to be recovered. As these players are forced to shelve expansion plans, larger Canadian producers are also scaling back by focusing on projects that used to be attached to smaller names, reported Reuters.
Because of the setbacks and shelving of projects, industry groups have trimmed their 2014 forecast of 5 million barrels per day (bpd) by 2030 for Canada’s oil sands. Now, it’s projected at 3.7 million bpd.
Canada’s oil reserves have also become less attractive to foreign players, which have sold over US$23 billion worth of Canadian assets within a year. Their new destination: US shale patches, including the Permian basin, where returns are quicker and extraction sites are closer to refiners.
“We cannot compete with that huge sucking noise to the south that is called the Permian,” Derek Evans, CEO of Pengrowth Energy, told Reuters.
Oil sands producers have successfully slashed a third of their operating costs since 2014, but the start-up costs they face far exceed those required in other operating areas. According to experts, the break-even price for a new thermal project that pumps steam as far as one kilometre into the ground to liquefy and extract bitumen is around US$60 a barrel.
According to a forecast from the US Energy Information Administration (EIA), the benchmark West Texas Intermediate crude CLc1 will average US$49.69 this year and US$50.57 in 2018. That doesn’t bode well for half a dozen thermal projects currently in the start-up phase.
Among those that are hurting is Athabasca Oil, a company that started when oil was US$100 a barrel. Its Hangingstone project, originally projected to produce 80,000 bpd, is now expected to increase output from 9,000 bpd currently to just 12,000 bpd. The project needs US crude prices to reach US$53 before it can break even. Right now, it’s struggling against transportation and marketing costs, as well as the cost of natural gas needed to produce the steam used in oil extraction.
For larger producers, major expansions are off the table. SunCor Energy has recently decided that its 194,000-bpd Fort Hills mine, anticipated to go online by the end of the year, would be its last megaproject. Canadian Natural has a handful of smaller facilities, including a 40,000-bpd Kirby North project, which will start producing in 2019. Meanwhile, other companies are upgrading existing sites with 20,000-bpd modules.
But even such small steps would be too risky for players like Pengrowth and Athabasca. “It’s very hard [for a small company] to drag itself out of the financing black hole it would have to get in to build a project to start with,” said Nick Lupick, an analyst at AltaCorp Capital.
For more of Wealth Professional's latest industry news, click here.
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For many mid-size oil sands producers — those that produce less than 100,000 barrels of oil daily — oil prices have been too low for start-up costs to be recovered. As these players are forced to shelve expansion plans, larger Canadian producers are also scaling back by focusing on projects that used to be attached to smaller names, reported Reuters.
Because of the setbacks and shelving of projects, industry groups have trimmed their 2014 forecast of 5 million barrels per day (bpd) by 2030 for Canada’s oil sands. Now, it’s projected at 3.7 million bpd.
Canada’s oil reserves have also become less attractive to foreign players, which have sold over US$23 billion worth of Canadian assets within a year. Their new destination: US shale patches, including the Permian basin, where returns are quicker and extraction sites are closer to refiners.
“We cannot compete with that huge sucking noise to the south that is called the Permian,” Derek Evans, CEO of Pengrowth Energy, told Reuters.
Oil sands producers have successfully slashed a third of their operating costs since 2014, but the start-up costs they face far exceed those required in other operating areas. According to experts, the break-even price for a new thermal project that pumps steam as far as one kilometre into the ground to liquefy and extract bitumen is around US$60 a barrel.
According to a forecast from the US Energy Information Administration (EIA), the benchmark West Texas Intermediate crude CLc1 will average US$49.69 this year and US$50.57 in 2018. That doesn’t bode well for half a dozen thermal projects currently in the start-up phase.
Among those that are hurting is Athabasca Oil, a company that started when oil was US$100 a barrel. Its Hangingstone project, originally projected to produce 80,000 bpd, is now expected to increase output from 9,000 bpd currently to just 12,000 bpd. The project needs US crude prices to reach US$53 before it can break even. Right now, it’s struggling against transportation and marketing costs, as well as the cost of natural gas needed to produce the steam used in oil extraction.
For larger producers, major expansions are off the table. SunCor Energy has recently decided that its 194,000-bpd Fort Hills mine, anticipated to go online by the end of the year, would be its last megaproject. Canadian Natural has a handful of smaller facilities, including a 40,000-bpd Kirby North project, which will start producing in 2019. Meanwhile, other companies are upgrading existing sites with 20,000-bpd modules.
But even such small steps would be too risky for players like Pengrowth and Athabasca. “It’s very hard [for a small company] to drag itself out of the financing black hole it would have to get in to build a project to start with,” said Nick Lupick, an analyst at AltaCorp Capital.
For more of Wealth Professional's latest industry news, click here.
Related stories:
Global oil supply rises from steady US production
Morningstar shows energy rose in September
