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Wiping out all talk of a downturn Oil sands developers pull more than C$8 billion worth of projects off shelf, buoyed by oil prices, cost cutting, supply-demand Gary Park For Petroleum News
If the Alberta government and its new energy minister Ron Liepert have even the faintest notion — and there is disagreement over the point — of entrenching the slowdown of the last 18 months and curbing the pace of oil sands development they may already be too late.
What has happened in just the last three weeks is more than just a faint echo of a previous boom.
The forward button has been punched for a string of mega-projects by Canadian Natural Resources and joint ventures by ConocoPhillips-Total and Husky Energy-BP, coming in the slipstream of other revived projects by Imperial Oil-ExxonMobil, Suncor Energy and EnCana.
Here’s the latest list of projects that are part of more than C$8 billion in capital spending unveiled this month, most of it headed for sanctioning decisions this year:
• ConocoPhillips and France’s Total have revived plans to expand their Surmont operation to 110,000 barrels per day from 27,000 bpd at an estimated cost of C$3.3 billion.
• Husky Energy, with BP as a partner, is poised to start work later this year on the first 60,000 bpd phase of the 200,000 bpd Sunrise project, having slashed estimated costs to C$2.5 billion from an original C$3.8 billion-C$4 billion. A company spokesman said the cost cutting is a result of an engineering review that delayed Sunrise by almost a year. He also said the large, capital-intensive oil sands ventures are driven by long-term strategies.
• Cenovus Energy, the oil sands spinoff from EnCana, is wasting no time hitting its stride, setting a capital budget for 2010 of US$100 million, up 50 percent from 2009, targeting a possible US$200 million a year, and has filed regulatory applications to add three 30,000 bpd stages to its Foster Creek in-situ operation and three phases of 40,000 bpd each to Christina Lake, where work is proceeding on a new 40,000 bpd stage costing US$2.5 billion and due onstream in the final quarter of 2011. The two projects have a combined capacity goal of 428,000 bpd.
• Canadian Natural Resources expects to move forward this year with two projects, concentrating on the next stage of its Horizon operation that is scheduled to reach its initial target of 110,000 bpd by mid-2010 and has a long-term goal of 250,000 bpd, along with its planned 45,000 bpd Kirby project, which is awaiting regulatory approval. The independent has yet to put a price tag on Horizon’s second phase, beyond the assurance of President John Langille that costs have “come down pretty dramatically” over the past six years. The first phase bills ran to C$9.7 billion, after several overruns, despite Canadian Natural’s efforts to rein in costs.
• These follow green lights towards the end of last year for the C$8 billion Imperial-ExxonMobil mine and C$2.9 billion for additions to Suncor’s Firebag operation.
• Also adding to the mix at the smaller end of the spectrum is privately held Osum Oil Sands, which filed a regulatory application for its 35,000 bpd in-situ project in the Cold Lake region, coming onstream in 2014. Company Chief Executive Officer Steve Spence said, “It’s good news for the whole industry when we see these projects moving forward again.”
• Sunshine Oilsands obtained regulatory clearance for its Muskwa primary recovery scheme, which will have the potential to produce 1,080 bpd, based partly on positive results from adjoining lands. Intended or not, such an advance puts a For Sale tag on Sunshine, which has an estimated 14.2 billion barrels of original-oil-in-place and 677,000 acres of leases, at a time when foreign state-run companies are on the prowl for assets.
Consultant: ‘out of doldrums’ “We’re out of the doldrums,” declared Bob Dunbar, a veteran analyst who is president of oil sands consulting firm Strategy West. “There is quite a bit of activity under way.”
Chris Felton, an analyst with Macquarie Securities, said there is a general sense among operators that the timing is suitable for resuming construction.
“It’s a combination of being able to access labor and lock in lower material prices,” he said.
Barry Lappin, vice president of the Canadian Heavy Oil Association, said oil sands companies view stable oil prices as their signal to proceed with expansion plans.
“We’re looking for cautious optimism in 2010 and the long-term future remains bright,” he said.
Sounds a lot like what brought the sector to its knees last decade, as the demand for labor and materials spawned cost inflation that skewed the economics of turning bitumen into transportation fuels and prompted voices of sanity in Alberta, notably former Premier Peter Lougheed (the so-called godfather of the oil sands), to appeal for government intervention to achieve “more orderly development” of the resource.
However, what’s happening today is not an exact parallel of the past.
Lingering doubts Despite the lingering doubts over where government climate-change legislation might be heading in the United States and Canada — a much less daunting prospect as the Obama administration struggles to get anything through Congress and Canada waits to take its cue from the United States — there is a sudden renewed optimism in the future of the oil sands.
There is a growing assumption that even if oil prices don’t start racing above the US$100-per-barrel level, they are unlikely to take a dive below their current US$79-$80 range.
And more producers with big stakes in the oil sands are shrugging off the critics as they make a case for the importance of the oil sands in North America’s supply-and-demand and energy-security equations.
That confidence in the next generation of oil sands development is bolstered by a dramatic shift from open pit mining of shallow bitumen deposits (which has created an eyesore that is visible from space) to thermal projects (which extract bitumen by steam injection from well pads that dramatically shrink the environmental footprint).
Almost without exception, companies are touting their chances of making technological advances that will reduce destruction of the landscape, trim their consumption of natural gas or water and lower greenhouse gas emissions.
ConocoPhillips and Total said they will use less water, energy and land than they did in the first phase of Surmont.
Not that mining is a thing of the past. Suncor, which takes considerable pride in its environmental record, is still faced with a decision on whether to proceed with the Fort Hills project inherited from Petro-Canada, or look for a buyer.
The oil sands timeout, partly enforced by the economic downturn, has also allowed operators to work on suppliers and labor unions to trim costs, sometimes by hefty margins.
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