Canada’s oil sands producers are caught in a rut.
The nation’s oil corporations are retrenching, with massive producers planning little or no additional growth and a few smaller initiatives struggling even to cowl their working prices.
As the period of huge new initiatives involves an in depth, many mid-sized producers – these with fewer property and producing lower than 100,000 barrels of oil a day within the oil sands – have shelved growth plans, unable to earn again the excessive start-up prices with crude at round $50 per barrel. Larger Canadian producers, in the meantime, deal with initiatives that previously have been related to smaller names.
The final three years have seen dozens of latest initiatives mothballed and expansions placed on maintain, which means tens of millions of barrels of crude from the world’s third-largest reserves could by no means be extracted.
Where trade teams in 2014 anticipated Canada’s oil sands output to greater than double to just about 5 million barrels per day (bpd) by 2030, that forecast has been knocked down to three.7 million bpd.
This follows a spell of consolidation that has seen international majors dump greater than $23 billion in Canadian property in a yr and switch to U.S. shale patches such because the Permian basin in Texas, which produce returns extra shortly and the place proximity to refiners means the barrels fetch a greater worth.
“We can not compete with that vast sucking noise to the south that known as the Permian. Investment are spiraling away down there,” Derek Evans, chief government of small oil sands producer Pengrowth Energy (PGF.TO) informed Reuters in an interview.
Permian manufacturing rose 21 % in 12 months via July in comparison with a 9 % enhance in Alberta’s oil sands, in accordance with Canadian and U.S. authorities knowledge.
COSTLY STARTUP PHASE
Mid-sized producers are hurting essentially the most, resulting from start-up prices that far exceed these in different main producing areas. Oil sands producers have slashed working prices by a 3rd since 2014, however constructing a brand new thermal undertaking – wherein steam is pumped as deep as one kilometer (1094 yards)underground to liquefy tar-like bitumen and convey it to the floor – requires U.S. crude benchmark at round $60 a barrel to interrupt even, analysts estimate.
The North American benchmark West Texas Intermediate crude CLc1 has traded between $42 and $55 a barrel up to now this yr. The U.S. Energy Information Administration forecasts it would common $49.69 a barrel in 2017 and $50.57 a barrel subsequent yr.
There are round half a dozen thermal initiatives within the pricey start-up part, when engineers steadily enhance steam stress to carry a reservoir’s manufacturing as much as full capability.
One of these is Athabasca Oil Corp’s (ATH.TO) Hangingstone undertaking. It was initially conceived as a 80,000 bpd undertaking, however as an alternative will carry output to solely 12,000 bpd from the present 9,000 bpd. The undertaking can break even with U.S. crude costs of no less than $53 a barrel, which means proper now Athabasca retains shedding cash on Hangingstone manufacturing. Size is essential within the oil sands; the extra bitumen an organization can squeeze out of a plant, the decrease mounted prices per barrel can be.
“(Athabasca) was an organization constructed when oil was $100 a barrel. In these days we have been going to search out funding for joint ventures and construct greenfield initiatives to an enormous dimension. The actuality is the world modified,” chief government Rob Broen informed Reuters.
Quarterly filings present why smaller gamers are struggling. Transportation and advertising and marketing prices at Hangingstone, together with the price of pure fuel used to supply steam to extract oil, and different working prices are a lot greater in contrast with Cenovus Energy’s (CVE.TO) Christina Lake undertaking, one of many highest-quality and largest bitumen reservoirs within the oil sands.
Pengrowth’s improvement plans are on maintain as nicely, Evans mentioned, as a result of the corporate wants U.S. crude to remain at $55 for a sustained interval to justify funding in its 14,000 bpd Lindbergh thermal undertaking, at one level supposed to develop as massive as 40,000 bpd.
THE BIG GO SMALL
Large producers have pulled…