Investment in Alberta’s oil sands will hit C$61 billion in the next decade — more than double the previous 10 years — as companies take advantage of growing international interest in the resource, predicts the accounting and consulting firm PricewaterhouseCooper (PwC).
Despite labor shortages, cost-control challenges and uncertainty over long-term oil prices, companies are ready to turn their profits into oil sands development, the firm concluded in its annual survey of the Canadian industry.
Those who take the plunge “should be profitable at $50 oil no matter what,” said Cal Jacober, a partner in PwC’s oil and gas practice.
While capital costs will continue rising, they should not outpace revenues, ensuring that oil sands operators maintain strong profitability, he said.
However, Jacober did not downplay the financial difficulties of efficiently applying new technologies, such as steam-assisted gravity drainage, by using steam to melt thick bitumen deposits and force them to the surface.
PwC oil sands expert Ray Crossley said that once the method is more widely applied companies will better “understand how it works with particular reservoir characteristics,” thus letting them get a tighter grip on the cost side.
PwC emphasized that the wave of projects will need to be carefully staged to avoid a labor crisis. PwC partner John Williamson suggested efficiency could be improved if companies merged their operations.
Because of “very strong” balance sheets, more chief executive officers are examining competitors’ businesses to see if a merger makes sense “to get better economies of scale or better access to different resources. There will be more consolidation,” he said.
Crossley said the global profile of the oil sands has been growing, although investors have to accept that they are embarking on 40- and 50-year projects.
Other 2004 highlights for Canada’s petroleum industry showed:
Crude production (conventional, synthetic, heavy and gas liquids) rose 2 percent over 2003 to 3.02 million barrels per day from 2.95 million bpd.
Natural gas output made a 2.4 percent gain to 17.4 billion cubic feet per day, with remaining established gas reserves dropping to 56.6 trillion cubic feet from 59.1 trillion cubic feet. Average total production among the top 100 producers jumped by 6 percent to 39,589 bpd of oil equivalent; for the top 10 senior producers output averaged 368,348 bpd of oil equivalent.
Average gross revenues for conventionally-financed producers were up 12.4 percent to C$1.05 billion, and for energy trusts grew by 30.5 percent to C$372 million.
Average revenues for integrated and senior producers (the 10 largest companies) were up by 16.8 percent to based on a 19.4 percent increase in average assets. For intermediate and junior companies, revenues rose by an average 74.1 [percent from average asset growth of 53 percent.
Cash flow from operations for the average producer was up 9 percent to C$314 million and earnings per share increased by an average 57 cents per share.
Energy trusts saw their market capitalization post a 53 percent gain to C$43.5 billion.
The oil and gas services sector record 21,593 well completions in 2004, while a record 28,630 well permits were issued.
Based on Sayer Securities findings, PwC said the median acquisition price for 2004 was C$46,196 per boe for the first quarter of 2005 compared with C$37,034 in the same period last year; media reserve acquisition prices for the quarter were C$14.09 per boe compared with C$12.83 a year earlier.
