Only one-fifth of Canadian oil producers can sustain production at a world price of US$50 per barrel, according to an analysis released last week by Evaluate Energy, the Calgary- and London, UK-based company that runs the CanOils database.
“Whilst cash costs are still very well covered for both oil and gas producers, only around a fifth of the oil producers can cover their full cycle costs,” the company states. “Canadian oil production, on the whole, appears unsustainable in the long run at US$50, much like it did at US$60.”
CanOils looked at a “peer group” of 50 oil and gas companies, ranging from 51.3% to 100% dependent on oil revenues, as opposed to natural gas. It noted that companies can stay in operation if they cover their cash costs but not their full cycle costs, which include interest on debt and dividends payable to shareholders. But they won’t be financially sustainable over the longer term.
“Even at US$50 oil, over 95% of the 50 companies could cover their cash costs, meaning there is no real incentive to cut production from currently producing oil and gas wells,” CanOils notes. “Of course, sustainable operations are what all of the companies will want to achieve, and what the majority of them had at US$90 oil, but there is no need to panic just yet.”