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Canada: All things being equal … With oil sands paying off, Canadian oil producers to enjoy banner profit year; research group predicts sharp dip in 2009 By Gary Park For Petroleum News
Weather, technical glitches, economic trends, geopolitical tensions and other unknowns aside, the Alberta oil sands will push the profits of Canadian oil producers up 17.9 percent this year to a record C$22.9 billion, according to the Conference Board of Canada.
Assuming oil prices of US$85 per barrel for the full year — and 2008 started out with prices 72 percent higher than a year earlier — revenues will soar by 17.4 percent to C$122.8 billion, the not-for-profit research organization said.
A pointer of things to come occurred in the final quarter of 2007 when the four largest companies — Imperial, Petro-Canada, Husky Energy and Suncor Energy — piled up new benchmark profits of C$11.8 billion (covering their entire operations) and posted revenues of C$80 billion.
However, the conference board expects labor and materials costs will rise and oil prices will retreat in 2009, because of additions to global supply, slowing demand from Canada’s No. 1 customer, the United States, and moves by OPEC, dragging profits back to C$16.3 billion (on revenues of C$119.7 billion).
From there on, the forecast is for a full recovery to profits of C$16.9 billion (revenues of C$128.6 billion) in 2010, C$19.3 billion (C$146.1 billion) in 2011 and C$23.7 billion (C$165.1 billion) in 2012.
Industry costs from 2008 to 2012 are C$85.1 billion, C$99.9 billion, C$103.5 billion, C$111.7 billion, C$126.7 billion and C$141.5 billion.
Costs will partly cancel gains The study predicts gains from bitumen and synthetic crude production will be partly cancelled out by increasing costs and the maturity of Canada’s sedimentary basins in Western Canada and offshore Newfoundland, with total oil volumes growing 9.2 percent this year and by 4.9 percent annually through 2012.
Nonconventional production from the oil sands region is expected to rise by 19.5 percent in 2008 from last year’s 1.25 million barrels per day, then average gains of 11.5 percent for the next four years.
In Western Canada, conventional production is “suffering now and the pains will extend indefinitely into the future,” the board said.
“Uncertainty over the new (Alberta) royalty regime set to begin in 2009, upward spiraling labor and material costs and an increasingly depleted Western Canada Sedimentary basin will see light and medium conventional production fall by 2.2 percent on average over 2007-2012,” it said.
Canadian conventional production enjoyed some benefits last year from a recovery in Newfoundland’s offshore, but the board predicts a drop of 1.7 percent this year as Hibernia, Terra Nova and White Rose (the three producing fields) go into decline.
For the forecast period, the East Coast is expected to drop an average 6.4 percent a year through 2012, although there is some hope from an expansion of White Rose and possible government approval of additions to Hibernia.
Investment in oil sands mines and upgrading facilities will pay off as both bitumen and synthetic crude accelerate rapidly over the forecast period, the board said. Massive pipeline investment That trend is also setting the stage for massive investment in synthetic and heavy crude pipelines to the U.S.
The study said C$29 billion will be spent on pipeline infrastructure across Canada from 2008 to 2012.
Along with mining projects and upgraders, pipeline investment will drive up spending by 8.7 percent this year and 10 percent in 2009, before easing to an average 3.7 percent annually for the next three years.
Chris Theal, managing director of institutional research at Tristone Capital, told the Calgary Herald he does not share the board’s view of softening oil prices in 2009.
Because of costs, it doesn’t matter whether it is Canada, Brazil or the Caspian, producers need US$70-$80-per-barrel prices, he said, adding that suppliers such as OPEC prefer higher U.S. dollar-denominated prices to counteract a weak U.S. dollar.
Study author Todd Crawford doubts higher Alberta royalties will affect investment in the oil sands, because higher oil prices have exceeded company expectations.
He said the elevated crude prices — with some sources counting on US$95 per barrel in a tight-supply situation — mean capital-intensive oil sands extraction projects are enjoying robust economics, which will underpin healthy production and further investment.
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