With a production-cutting deal between Russia and Saudi Arabia bolstering hopes for higher crude oil prices, and two new pipelines approved by Ottawa to deliver diluted tar sands/oil sands bitumen to markets in the United States and Asia, there are signs of renewed expansion in Alberta’s oil patch, Bloomberg reports.
Cenovus Energy Inc., Canadian Natural Resources Ltd. and Husky Energy have all announced in recent days that they are proceeding with expansion projects that had been delayed by the deepest slump in crude oil prices in decades.
Husky announced this week that it was increasing its 2017 capital investments in the Alberta oilpatch by $700 million to raise its production of diluted bitumen by 44,000 barrels a day. Last week, Cenovus said it would also expand production at its Christina Lake tar sands/oil sands site by 50,000 barrels a day. And Canadian Natural Resources announced last month that it was reactivating suspended construction of yet another 40,000 barrel-a-day facility.
“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,” Bloomberg writes.
Both market and political developments have shone on the projects’ outlook. Canada’s federal government recently approved two of three proposed new delivery pipelines from Alberta. And a production-cutting pact announced last weekend between Saudi Arabia and Russia spurred benchmark crude futures contracts to their highest prices in a year and a half.
But the future remains uncertain. Resistance to one of the approved pipelines—Texas-owned Kinder Morgan’s Trans Mountain expansion—puts in question its viability, and the company has yet to announce a final investment decision. And once the roughly US$15-per-barrel discount for thick, heavy diluted bitumen is factored in, those benchmark prices still translate to only about US$42 a barrel for Alberta’s product—still barely above half the industry’s estimated average break-even point before the price crash.
Cenovus, however, says it cut its operating costs by as much as 40% during the downturn, Bloomberg says. “Our teams have done a tremendous amount of work to reduce cost and improve the efficiency of every dollar that we planned to spend,” Cenovus CEO Brian Ferguson said in a conference call with reporters. “We expect Christina Lake to be an industry-leading oil sands expansion.”
The three companies aren’t alone in seeing light at the end of the oilpatch’s two-year tunnel of low prices, said Wood Mackenzie analyst Mark Oberstoetter.
“You are seeing some cautious optimism come back,” he told Bloomberg. “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.”