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Front end costs not the oil sands clincher
Gary Park Petroleum News Calgary Correspondent
What’s C$5 billion in return for oil reserve life indexes of 30 years?
Not enough to drive away those prepared to invest in Alberta’s oil sands, according to Brian Prokop, an analyst with Calgary-based investment dealer Peters & Co.
Speaking to a Canadian Energy Research Institute conference, he said it’s the operating costs, not the multi-billion-dollar capital costs that are the most “critical to overall sensitivities.”
Canadian Energy Research Institute Research Director Bob Dunbar said that even the 20 percent gain in the value of the Canadian dollar against its U.S. counterpart in the past year is a lesser concern than surging natural gas prices at a time when the institute has forecast that the oil sands could consume 1.5 billion to 2.5 billion cubic feet per day by 2017.
A study institute analysts released last month found that both mining and thermal recovery of bitumen from the oil sands region need a West Texas Intermediate price of $25 a barrel to yield a net return on investment after inflation of about 10 percent, based on a NYMEX gas price of about $4.50 per million British thermal units.
Against a growing background of predictions that the Canadian currency will continue to strengthen, there is pressure on oil sands producers to “participate as much as possible in all areas of the value chain,” said Brant Sangster, senior vice president of oil sands at Petro-Canada.
He told the institute conference that Petro-Canada has resumed work on expanding its Edmonton-area refinery to process its own oil sands volumes. By upgrading and refining into final products “we capture the entire value chain,” Sangster said. List of new oil sands players grows Whatever the concerns about capital costs and budget overruns, the list of new oil sands players continues to grow.
Marathon Oil plans to decide before the end of 2004 whether to invest in the oil sands to feed its U.S. Midwest refineries.
Chief Executive Officer Clarence Cazalot said his company expects a growing share of Canadian crude exports to originate in the oil sands over the next seven to 10 years.
On a much smaller scale, Calgary-based Paramount Resources is exploring potential oil sands developments in northeastern Alberta.
It controls five separate possible developments on 120 sections after acquiring another section in the first quarter and has drilled 12 delineation wells this year on two leases.
President and Chief Operating Officer Jim Riddell said Paramount is weighing a number of technologies that could allow it to upgrade raw bitumen in the region and thus achieve a better price by not having to use diluent to ship the bitumen by pipeline to distant refineries.
He said the company is also delving into the use of coke from the upgrading process as a fuel rather than natural gas.
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