Alberta Oilsands, what does the barrel price have to be?

[spikerS]

I keep hearing numbers anywhere from $35 to $85 per bbl for the alberta oil sands to be profitable, but I can't find anything with concrete numbers.

Anyone able to give me some numbers from a reputable source? Links work just fine.

[Supa Dexta]

Its likely A LOT closer to the 30$ figure then anything else, (from what I hear from all the older oil field guys)... The only way they get these fairy tale numbers of 80+ is when they are trying to factor in doing multi billion $ projects all at once, when really that doesn't mean that each barrel costs them that much...

[Pacman]

It will be hard to get an exact number....but rest assured, as the price of oil continues to drop, so will the projects that produce marginal amounts of oil/profit as well as the big dollar new projects.

There are a few really big projects (Petro Canada Fort Hills Project for example) that are on the verge of being canceled due to cost containment.

[cloud7]

they are far from hurting right now, with the low Canadian buck.

[Supa Dexta]

Spending has been of the charts the last number of years.. Why else would you get a welder making 300k a year?

The fact is these projects have been here since the 70's, toiling away, trying to get the processes down, and spending oil money from other parts of the world.. It's just part of the r&d oil train... Now they have a lot more money to play with, and a lot better processes of getting it out of the ground. And yet they still have billions in profit quarter after quarter...

People think slowing from WIDE OPEN, is the death of the oil sands..

[spikerS]

i hardly expect this to be the death of the oil sands. this is a debate myself and co-workers are having. I look back at bbl prices, and averaging things out, i think the oil sands would be profitable above $45/bbl.

i fully agree that some projects will be cut, as they are no longer profitable, but that is to be expected.

[Supa Dexta]

postponed.. not cut.

[broken_legs]

Originally posted by cloud7
they are far from hurting right now, with the low Canadian buck.

Yeah this week. What about next month? Next year? What about all the money thats getting pumped into the economy via central banking, will inflation be a factor in the years to come? Lets see how stable the currency is before we start using this as a reason for the economy to stay strong.


Don;t forget that a lot of these companies utilize CREDIT and EQUITY (ie Issuing Stock, market capitalization) to raise funds.

Well Suncors stock has been slashed by 60%. Do you think banks want to lend them money now that the credit markets are frozen and their market cap has been cut by two thirds?? Probably not. Suncor has already announced cutting back on their projects by 1/3, so has Petro Can. And they have cited commodity prices and lack of credit for the reasons.


I have read that Prices at $80/barrel need to be sustained for long term profitability.

Obviously technology like SAGD and CSS are cheaper than mining bitumen from the ground and cooking it out.

[broken_legs]

Oil sands projects slashed as credit crisis hits Alberta
NORVAL SCOTT
00:00 EST Friday, Oct 24, 2008

CALGARY -- The full force of the global financial crisis has finally hit the oil sands, delaying two of Canada's largest energy projects and tempering Alberta's economic boom.

Suncor Energy Inc. said yesterday that it is slashing its expected spending in 2009 by one-third because of uncertainty over oil prices and credit availability.

Part of the reduction will affect the $20.6-billion Voyageur oil sands project the company is developing, meaning its upgrader will be delayed by one year.

Meanwhile, the consortium behind the $23.8-billion Fort Hills project, led by Petro-Canada, said it could also delay building its planned upgrader, instead constructing only its planned oil sands mine in order to get crude to market more quickly and cheaply.

The announcements mean that the upgraders at two of the most expensive energy projects ever proposed in Canada now face delays because of the financial crisis, which has sent oil prices plummeting and made credit harder to find.

Upgraders are expensive processing facilities that turn oil sands bitumen crude into a lighter synthetic product that can be handled by more refineries. Alberta is keen to ensure that they are built within the province so that it, rather than the U.S., benefits from the lucrative work through the creation of jobs and extra income.

The announcements come after other companies, including the Nexen Inc.-OPTI Canada partnership and privately held BA Energy Inc., announced delays at smaller projects in recent weeks.

The sudden rash of postponements signals a potential end to Alberta's cycle of spiralling costs caused by worker and material scarcity, which has forced the price of new projects through the roof and crippled regional productivity.

"The pendulum is swinging," Suncor chief executive officer Rick George said in a conference call. "It's not a bust cycle ... but there's a levelling out of capital spending, making [costs] more reasonable for everybody. Manpower will be available at a cheaper cost in six months than today."

Suncor had previously planned to spend $10-billion in 2009, but will now spend only $6-billion, financed from the company's cash flow rather than from debt markets. The bulk of the spending cuts will fall on Voyageur, meaning that the project's upgrader will now be finished in 2013, not 2012. Voyageur will nearly double Suncor's output to 550,000 barrels a day when complete.

"What we're doing is announcing a change in how we execute this project - we're not mothballing it, we're not stopping it," Mr. George said.

Oil prices have fallen by more than half since hitting $147 (U.S.) a barrel in early July, affecting the economics of integrated oil sands projects that include upgraders, which require long-term prices of around $85 a barrel or more to provide a solid rate of return.

Not only do upgraders cost billions of dollars to build, but the price difference between bitumen and synthetic crude has narrowed because of higher North American demand for heavy crude, leaving less value for the facilities to capture.

That's causing problems for developers such as the Fort Hills consortium - Teck Cominco, UTS Energy and project operator Petrocan - which last month announced that the cost of their oil sands project had ballooned by more than 50 per cent in just over a year.

As valuations have fallen amid the financial crisis, the cost of building Fort Hills is now more than the combined $19-billion market value of the consortium partners, forcing them to look at ways to defray the huge capital expenditures. "This is just good management," said FirstEnergy Capital Corp. analyst William Lacey. "The approach [these firms] are now adopting takes some of the strain out of the system and puts more balance into the discussion between corporations and labour."

SUNCOR ENERGY (SU)

Close: $26.20, down 26¢

PETRO-CANADA (PCA)

Close: $27.80, up $2.39

***
Q3 2008 2007
Profit $1.25-billion $776-million
EPS $2.58 $1.59
Revenue $8.07-billion $5.55-billion

Source: Company reports

[no_joke]

Originally posted by Supa Dexta

People think slowing from WIDE OPEN, is the death of the oil sands..

Summary of the patch mentality. Can be annoying.

[Supa Dexta]

"Solid rate of return" That right there is horse shit. Oil companies always like to talk shit, and are always the first ones to say they'll take their ball and go home.. But at the end of the day the oil is there, and so will they. 85$ a barrel.. give me a break.. Maybe to keep their 1000% returns flowing in..

[grampafunk]

Originally posted by no_joke


Summary of the patch mentality. Can be annoying.

it is about time things slow down. It is absurd for anyone to have believed that things would continue at the pace they were.

[Xtrema]

$55 is for operational break even point.

$85 is what needed for investors to be happy.

$120 is where Warren Buffet wants before he'll consider investing in oilsand.

Of course this is for $cdn on par $usd.

[Supa Dexta]

Based on what?^

Again those are just random numbers that may suit one report. Back when oil was 10$ they said they needed 30, 30 needs 50, and 50 needs 80..

[black13]

yea its all oil company bullshit. They could operate at low prices but once they got used to 1000% profit increase in the summer when price for barrel was $150, that they don't wanna go back.
So they keep announcing emergency meetings in Opec to shut down a number of facilities to scare people to get prices to go back up again.

Oil companies are the real ones fucking us and getting away with it.

[Antonito]

Originally posted by Supa Dexta
Based on what?^

Again those are just random numbers that may suit one report. Back when oil was 10$ they said they needed 30, 30 needs 50, and 50 needs 80..

The numbers quoted sound about right. The operating costs have obviously gone up as the price of materials and labour has skyrocketed. $85 sounds about right so as to provide a cushion against instances like this where there is volatility, so that even if the price drops $10 or 20, there is still a shitload of profit. And Buffet did kind of state that $120 is the benchmark for worry free investing http://sudesh.posterous.com/warren-b...terview-long-b

Also, I'm confused as to how the oil companies telling people that they may not have enough money is a good thing in this instance. When the government was talking about taking a larger chunk, that made sense because it was to try to get the government to chicken out. In this instance, what is the end result? Wouldn't it just cause more investors to be wary of investing?

[Supa Dexta]

Again.. You can't just say it "sounds right".. We have no idea, and it can be skewed so far one way or the other on how you want to score it.. What we do know is these places have operated on a hell of a lot less profit.. And hasn't steel and shit dropped off big time lately? I know for a fact service companies have pulled back their prices big time after last yrs fiasco... I also know some higher ups used to say mid 30's were the price to keep things going.. So anything above that is where they want "a reasonable profit" to sit at.

[Xtrema]

I'm not going to tell you my source, let's just say it's something I know. Many people working at/on different mine sites should also know what their op cost is. Like I said, that number is when $ is on par. Now that $cdn worth less, labor cost less and break even point can be in the mid-high $40s.

The $85 is a "sounds right number", quoted by most newspaper articles. Once you take-in your break even point, what you want as a margin and the re-investment it take to create a mine site, asking for a 37% margin isn't that bad. Retail has 100% margin in comparison.

Here's some math:

$40B is needed to build a mine site that pumps about 150K barrels a day. At a margin of $30, nets $4.5M/day.

If you pay for that $40B like a house (30% down, 4.25%, 25 yr amortization), the monthly payment is $151M.

$4.5*30 = $135M/month. You'll still be $20M short a month.

You can see why projects are stopping/delayed and why Buffet said $120 is needed to offset the risk.

Now oilsand development started when oil was in the high teens. Oil companies won't invest in it if they don't think it'll be profitable in the long run. But we also NEVER had a credit crunch/recession like this, so I doubt the analyst will be that bullish on approving new projects until a light is seen at the end of the tunnel.

[Sadboy]

Originally posted by Pacman
It will be hard to get an exact number....but rest assured, as the price of oil continues to drop, so will the projects that produce marginal amounts of oil/profit as well as the big dollar new projects.

There are a few really big projects (Petro Canada Fort Hills Project for example) that are on the verge of being canceled due to cost containment.

I don' think they will cancel this project
They have to start production in 2011 or the government takes back the lease.
The big decision is what else to build, upgrader, refinery, etc. PCA can just produce bitumen all else fails.

Their most recent analyst call is on their website now.

[S4maniac]

Originally posted by Xtrema
I'm not going to tell you my source, let's just say it's something I know. Many people working at/on different mine sites should also know what their op cost is. Like I said, that number is when $ is on par. Now that $cdn worth less, labor cost less and break even point can be in the mid-high $40s.

The $85 is a "sounds right number", quoted by most newspaper articles. Once you take-in your break even point, what you want as a margin and the re-investment it take to create a mine site, asking for a 37% margin isn't that bad. Retail has 100% margin in comparison.

Here's some math:

$40B is needed to build a mine site that pumps about 150K barrels a day. At a margin of $30, nets $4.5M/day.

If you pay for that $40B like a house (30% down, 4.25%, 25 yr amortization), the monthly payment is $151M.

$4.5*30 = $135M/month. You'll still be $20M short a month.

You can see why projects are stopping/delayed and why Buffet said $120 is needed to offset the risk.

I don't want to question your sources, but using a very current example, OptiNexen Long Lake, they built phase 1 for $4.5B. It will produce 60k boe/d.


Again, I don't know enough to say a price, but I would suspect its closer to $40 a barrel to break even.