Trudeau's Pipeline Approval, OPEC Deal Resurrect the Oil SandsBy
Cenovus follows Canadian Natural in announcing expansions
Companies are growing after cutting costs during downturn
Canadian oil sands producers are finally ready to grow again as Cenovus Energy Inc. and Canadian Natural Resources Ltd. announce they are pushing ahead with expansion projects two years into the worst crude slump in decades.
Cenovus said Thursday that the company will proceed with its 50,000 barrel a day phase G expansion at its Christina Lake oil sands site. The announcement comes more than a month after Canadian Natural said it was resuming work on its 40,000 barrel a day Kirby North project.
The expansions are the first to resume since an oil market crash saw prices plunge from more than $100 a barrel in 2014 to a 12-year-low of about $26 a barrel earlier this year. The Organization of Petroleum Exporting Countries’ agreement last week to cut production for the first time in eight years propelled crude prices above $50 just as the Canadian government approved the expansion of two export pipelines.
“You are seeing some cautious optimism come back,” said Mark Oberstoetter, lead analyst for upstream research at Wood Mackenzie in Calgary. “2017 looks to be a healthier year in terms of where the price will be. It won’t be all-out growth, but they can start to think of brownfield, debottlenecks, projects that do make sense in the new world.”
The oil sands region of northern Alberta is one of the most expensive regions in the world for crude production because of its isolation and the technical challenge of extracting the tar-like bitumen from the ground. Heavy Canadian crude currently sells at a discount to West Texas Intermediate futures of just over $15 a barrel.
The downturn forced oil sands companies to become more cost-efficient as they renegotiated contracts with service companies and cut their workforce to survive falling prices.
During the downturn, Cenovus managed to cut operating costs as much as 40 percent, Brian Ferguson, Cenovus’s president and chief executive officer, said in a conference call Thursday. The company will raise its capital budget next year by 24 percent from 2016 to C$1.3 billion, with 30 percent dedicated to “planned growth projects,” he said. Christina Lake Phase G will be built at C$500 million less than originally budgeted.
“We expect Christina Lake Phase G to be an industry-leading oil-sands expansion,” Ferguson said. “Our teams have done a tremendous amount of work to reduce cost and improve the efficiency of every dollar that we planned to spend.”
Total oil production is expected to rise 14 percent from 2016 after recently completed expansions at Christina Lake and Foster Creek, the CEO said. Expansion for the Foster Creek Phase H and Narrows Lake Phase A expansions will be announced in mid 2017.