Oil Sands Innovation Needed to Weather $70 Crude: AIMCo

Oil-sands developers will need to innovate on technology to cope with crude prices of about $70 a barrel and Alberta will need to introduce a sales tax, the head of the province’s largest pension fund manager said.

New technology will be required to cut costs and the western Canadian province should adopt a sales levy to make up for declining royalties as oil prices are likely to remain close to current levels, said Leo de Bever, who oversees about C$75 billion ($66 billion) as chief executive officer of Alberta Investment Management Corp., known as AIMCo.

The expansion of oil-sands operations in northern Alberta is being threatened by a bear market for crude as OPEC is keeping its current output target amid concerns that supply growth will outpace demand. West Texas Intermediate, the U.S. benchmark oil price, has slumped 38 percent from a June peak to $66.88 a barrel at 3:33 p.m. in New York.

“In the long run, I would be very surprised if it were more than $70,” de Bever said of the WTI price at a news conference in Calgary today. “All those plans we have to expand production are going to be in some trouble unless we figure out how to do it more cheaply.”

New oil-sands projects require a WTI price of at least $85 a barrel to be profitable, according to the Canadian Energy Research Institute, which last month predicted a more than doubling of output to 5.2 million barrels by 2030.

Crude prices aren’t poised to rebound in the long term because of improved vehicle energy efficiency and technology that’s lowering oil-production costs as the world transitions to more sustainable fuels, de Bever said. Alberta’s oil sands are among the most expensive resources to develop and Canada risks losing investment, he said.

Tougher Times

Alberta Premier Jim Prentice last week said he isn’t considering introducing a sales tax, even as he warned of tougher times ahead for the provincial economy. The province is home to the world’s third-largest reserves and the government gets about a third of its revenues from taxes and royalties charged to energy producers. Alberta is the only Canadian province that doesn’t have a sales tax.

AIMCo has stakes in developers including Suncor Energy Inc. and Canadian Natural Resources Ltd. It also owns shares in closely held Oak Point Energy Ltd., which designs modular production facilities and owns oil-sands properties, de Bever said. De Bever said Oak Point provides the kind of innovation and lower-cost technology that oil-sands developers need.

After six years at the helm, de Bever, 66, will be succeeded by Kevin Uebelein on Jan. 5.

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