The operational cost of extracting bitumen from Canada's oil sands can reach US$37/bbl for in situ projects and US$40/bbl for mining projects, according to Wood Mackenzie's latest analysis. This is amongst the highest of all project types globally.
"With low oil prices, the oil sands region's cash flows will fall by $23 billion in 2015 and 2016 combined," said Callan McMahon, Principal Analyst for Wood Mackenzie. Capital spend in the region is expected to fall by US$1.5 billion over the next two years (4% from 4Q14 assumptions), but this will have a limited impact on production.
"Even if projects temporarily operate at a loss, shut-ins are not expected; and with the costs sunk, projects totalling 458 000 bpd of bitumen are set to start production in 2015 - 2016," said McMahon.
In addition, Wood Mackenzie noted that decreased investment will show post-2017, and the 4.0 million bpd peak bitumen production previously estimated in 2020 has now been pushed out to 2024.
- The oil sands remain viable long-term: An average point forward breakeven for an onstream in situ project is US$41/bbl and the average point forward breakeven for an onstream mine is US$47/bbl (WTI indexed), but full-cycle breakevens can exceed US$100/bbl for both project types.
- Larger and diversified companies are better positioned to weather the storm: Imperial, CNRL, Suncor and Shell each still hold over US$20 billion in post-tax remaining NPV10 in the region.
- The price impact on value is massive: To date, over US$35 billion of value has evaporated from the region. And, if prices stay low, at a US$60/bbl real flat price deck, Wood Mackenzie calculates that another US$121 billion could be at risk, which equals with the Eagle Ford Shale's remaining value.
Adapted from press release by Rosalie Starling