Oil Sands Crude Not As Expensive To Produce As It Used To Be
From Financial Post
by Jeff Lewis
CALGARY – Alberta’s oil sands, long regarded as an expensive sandbox for energy giants, are more competitive with global sources of crude than recent cost blowouts may lead investors to believe, a survey of 135 global oil and gas companies shows.
Worldwide supply costs for oil-weighted companies edged up 7% in 2012 to US$99.66 per oil-equivalent barrel, from US$92.73 per barrel in 2011, on higher reserve replacement costs, according to new research by BMO Capital Markets. The supply cost is essentially a break-even price, or the West Texas Intermediate oil price companies need in order to recover costs, plus earn a 10% return on capital.
The report pegs supply costs for oil sands projects in the range of US$50 to US$90 per barrel. That compares to the US$70 to US$90 a barrel needed to blast light, sweet crude through underground fissures in North Dakota’s Bakken shale, the Eagle Ford play in Texas and Colorado’s Niobrara shale, the bank said.
“There’s a lot of oil sands projects that are being invested in on the basis of supply costs as low as US$50, so one of the key takeaways here is really oil sands isn’t that marginal a source of supply,” Randy Ollenberger, managing director, equity research at BMO in Calgary, said in an interview. The world’s No. 3 crude deposit “is actually quite economic in the global context.”
It is a message that runs counter to a history rife with cost overruns on project expansions and stalled pipeline developments that have contributed to price discounts for Alberta’s heavy crude, frustrating investors.
The first phase of Exxon-controlled Imperial Oil Ltd.’s 110,000-barrel-a-day Kearl mine, for instance, came with a $12.9-billion price tag — as much as 40% above earlier estimates.
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