Oil­sands pro­duc­ers lose on ev­ery bar­rel: an­a­lyst

Calgary Herald - - FRONT PAGE - DAN HEAL­ING

CAL­GARY A fi­nan­cial an­a­lyst says prices be­ing paid for Western Cana­dian oil­sands bi­tu­men have fallen so far that many pro­duc­ers are los­ing money on ev­ery bar­rel sold into the spot mar­ket.

An­a­lyst Matt Mur­phy of Tu­dor Pick­er­ing Holt & Co. says re­cent head­lines have been fo­cused on the fall­ing value of the Western Canada Se­lect price, but that mea­sure is for a blend of heavy, sticky bi­tu­men and light oil needed to di­lute it so it can flow in a pipe­line.

The price of WCS fell to about US$19 per bar­rel on Thurs­day, about US$52 per bar­rel be­low the bench­mark U.S. West Texas In­ter­me­di­ate price.

“Those are the head­lines but the re­al­ity is ac­tu­ally quite a bit worse than what those head­line WCS dif­fer­en­tials would sug­gest,” said Mur­phy. “It’s not the ac­tual re­al­iza­tions these pro­duc­ers are get­ting … you’re los­ing money be­fore you even pro­duce that bar­rel at cur­rent dif­fer­en­tial lev­els.”

Con­den­sate, a type of light oil of­ten used to di­lute bi­tu­men, was selling for about US$63 per bar­rel in Ed­mon­ton on Thurs­day, which means the bi­tu­men part of a WCS bar­rel com­posed of 30- to 40-per-cent dilu­ent was ac­tu­ally fetch­ing be­tween neg­a­tive US11 cents and neg­a­tive US28 cents per bar­rel, he said.

It’s the first time that has hap­pened, Mur­phy said, adding bi­tu­men prices have al­ways pre­vi­ously been in pos­i­tive ter­ri­tory. In early 2016, when U.S. oil prices fell be­low US$30 per bar­rel, bi­tu­men was still worth about US$8 per bar­rel, he said.

The neg­a­tive pric­ing is ex­pected to be short-lived, how­ever. De­mand for heavy oil will in­crease when U.S. re­finer­ies com­plete fall main­te­nance pro­grams, he said, and grow­ing crude-by-rail ca­pac­ity will help bring bar­rels to mar­ket that can’t fit into Canada’s full pipe­lines.

Mur­phy said he ex­pects rail­way ex­ports of crude to climb to about 300,000 bar­rels per day by yearend from re­cent record lev­els of more than 200,000 bpd.

Cen­ovus En­ergy Inc., which slowed bi­tu­men pro­duc­tion ear­lier this year be­cause of poor prices, re­cently signed con­tracts with Canada’s two ma­jor rail­ways to move 100,000 bpd of heavy crude oil from north­ern Al­berta to var­i­ous des­ti­na­tions on the U.S. Gulf Coast.

“There’s no ques­tion that these dif­fer­en­tials are chal­leng­ing and that they un­der­score the crit­i­cal need for im­me­di­ate ac­tion on mar­ket ac­cess,” said Cen­ovus spokesman Brett Har­ris in an email. He de­clined to com­ment specif­i­cally on the com­pany’s price net­backs.

Dif­fer­ent types of bi­tu­men re­quire dif­fer­ing amounts of dilu­ent to flow in a pipe­line.

The new­est min­ing projects such as Sun­cor En­ergy Inc.’s Fort Hills mine need 20- to 25-per-cent dilu­ent but steam-driven projects that pro­duce from wells need 30- to 40-per-cent dilu­ent, Mur­phy said.

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