Oil sands production restarting

The first of 90,000 evacuated residents are re-entering the oil sands city of Fort McMurray a month after much of their community was devastated by wildfires at the same time major producers are devising plans to restart more than 1 million barrels per day of production.

Initially, authorities are allowing about 8,000 workers back into the community and cleared seven work camps north of the city to reopen.

Syncrude Canada, shut down for the first time since it began commercial production in 1978, and Suncor Energy are leading the way in restarting operations, while Imperial Oil is on the verge of embarking on limited operations at its 194,000 bpd Kearl bitumen mine.

Suncor Chief Executive Officer Steve Williams said his company, the largest oil sands producer, was confident it could “safely return people to the region” and start the process of getting “things back to normal in Fort McMurray.”

The Alberta government also lifted orders that prevented all but critical staff from remaining at sites connected with the operations of ConocoPhillips and CNOOC’s Nexen unit.

One of the big unanswered questions is what impact the build-up of production from northern Alberta will have on crude prices now that they have clawed their way back to the US$50 level, or whether the oil sands will continue on their projected growth trajectory until 2019.

Laura Lau, senior portfolio manager at Brompton Funds, said most of the producers should no longer be under pressure from their banks “who won’t come after them as badly. But can they grow? No they can’t.”

Samir Kayande, an analyst at RS Energy Group, said that, despite outages and shutdowns in the oil sands and shale oil plays, supply and demand is still not in balance in North America, though that gap is “probably going to close sooner rather than later.”

Cenovus Energy Chief Executive Officer Brian Ferguson said his oil sands company is working on the assumption that prices will remain volatile, trading in the range of US$35-US$65 a barrel over the next year.

There is no specific price level that would prompt Cenovus to revive expansion, he said.

Paul Sankey, managing director of New York-based Wolfe Research, said prices would need to stabilize around US$70-US$80 to justify new projects in the oil sands “and that’s pretty hard to come up with right now.”

- GARY PARK