‘We’ve got the fight in us’
Oilsands companies battle for dollars
HOUSTON — Canadian oilsands companies are touting their projects as longer-term, more predictable investments in an attempt to counter the increasing flow of capital toward leaner developments with shorter return cycles.
During an annual energy conference in Houston this week, oilsands representatives are highlighting what they say are competitive advantages of Canadian heavy oil producers, placing particular focus on technology improvements.
“We’re quite well positioned,” said Judy Fairburn, the vicepresident of business innovation at Cenovus Energy Inc., during a discussion Tuesday. “We’ve got the fight in us. Our business is competitive with light, tight oil.”
Fairburn said Cenovus brought down its break-even price across its operations in 2016 to $45 US per barrel, matching many shale producers. Other producers like Imperial Oil Ltd. and Husky Energy Inc. have also reported falling oilsands break-even prices.
She said the company has reduced costs at its steam-driven oilsands facilities by extending its wells to record lengths, injecting solvents to mobilize bitumen and improving its IT capabilities.
Others have seen similar improvements.
Ryan Lance, CEO of ConocoPhillips, said the company had drastically reduced its cost structure at its U.S. shale operations by improving well performance and moving toward a more manufacturing-based production process. The company is now replicating those same tweaks at its oilsands development in Alberta.
“We’re seeing that same technology and innovation driving lower costs and greater opportunity,” said Lance. “The challenge for our Canadian team is: How do you do that in just a two- to threeyear cycle time?”
The company is a joint operator in the Surmont oilsands project, which recently completed an expansion that put it above 100,000 barrels per day production.
OPEC members have also begun talking up basins with longer lead time such as the oilsands and offshore basins — as they believe these long-life anchor developments are vital for the overall health of the industry.
During a press conference, Mohammad Sanusi Barkindo, the secretary general of OPEC, said “we expect the tarsands in Canada to also continue to attract investment,” especially as demand for the commodity is not expected to plateau for years to come.
Fatih Birol, International Energy Agency’s executive director, echoed that sentiment, noting that he expects the oilsands “to make handsome contributions to global oil production,” despite the shortterm lure of shale oil.
“Now it’s a new dynamic, and we have to find a place for everybody — the cohabitation of Middle East oil, with shale and oilsands, according to the rules of economics, of course,” Birol said.
Oilsands firms, for their part, have been busy selling their projects as a stable option for investors due to very low decline rates. However, it is uncertain whether the message will catch on as most analysts have written off new oilsands megaprojects amid depressed prices.
Lance said that while oilsands provide long-term stable oil supply, such projects tend to be higher cost and therefore riskier.
“So how many of these long or medium cycle projects can you stack up in your portfolio? You have to be really careful.”
Gains in oilsands productivity come as depressed prices, political fragility and uncertainty over long-term oil demand have caused investors to seek refuge in U.S. shale plays.
Major international players like Exxon Mobil Corp. and ConocoPhillips Co. have allocated larger portions of their capital budgets toward shorter-cycle shale assets, particularly southern U.S. basins like the Permian and Eagle Ford. Smaller companies have pursued a string of equity deals in recent months to fund aggressive new drilling plans.
While capital has been refocused on shorter-cycle developments, some commentators said the trend extends beyond energy investment. In particular, years of political fragility have caused a wider case of so-called “short-termism” in a number of industries as investor confidence fades.
“People have been reluctant, they’ve been cautious,” said Thomas Fanning, the president and CEO of Southern Company, one of the largest utility companies in the U.S.
Alberta Premier Rachel Notley, who was in Houston to discuss her government’s climate policies, said more rigid environmental regulations would set up the province for growth in the future.