Despite exodus, execs upbeat on oilsands
International companies may have traded the oilsands for tight oil, but those still in the business say there’s lots to like about the resource’s next chapter.
“This is a very exciting time,” Steve Laut, president of Canadian Natural Resources Ltd., told the CAPP Scotiabank investment symposium Tuesday in Toronto. “We are moving back to a more stable time. Canadian companies are well- positioned.”
Canadian Natural purchased the oilsands business of Royal Dutch Shell PLC and Marathon Oil Corp. in a blockbuster deal in February, boosting its overall production to one million barrels a day.
It’s one of a handful of Canadian operators that took advantage of the foreign sell-off to grow their oilsands holdings. Statoil ASA, Murphy Oil Corp. and ConocoPhillips have also exited, while other international companies have cut spending on their oilsands plays.
Laut predicted consolidation under a handful of Canadian companies would improve project execution, reduce costs and lead to more innovation.
“The advantage is we are committed and we are very focused,” he said to reporters on the sidelines of the conference. “We are commit- ted to R& D and to get those technology breakthroughs. We are going to make it happen — and we will.”
The Shell acquisition is “transformational” for Canadian Natural and will result in higher cash flow and a more robust combined business, he said.
Still, he said investors are worried about what the exodus says about Canada’s competitiveness versus other opportunities, i ncluding the Permian tight oil play in Texas, the latest investor magnet.
“If you are an international company, you look at how long it takes to get anything done in Canada, versus the Permian or Brazil, or Saudi Arabia, that is who we have to compete (with) now,” he said.
“They are looking at time delays ( to get regulatory approvals) and the cost to get through that process, and they are making some judgment.”
John Rogers, vice- president of investor relations at MEG Energy Corp., a midsize in- situ producer, said the business is enjoying the best conditions in a decade.
Before the oil crash, the oilsands struggled with rising costs due to competition for staff and services. The international spotlight attracted capital, but also negative attention that delayed pipeline approvals and fuelled concern about high greenhouse-gas emissions.
“We have been able to bring those costs down, we have been able to pause and look at how technology can fundamentally change this business,” he said on the sidelines of the meeting. “We have a better understanding of the capital structure and what works. The industry is re- emerging stronger and more powerful than it has in the past.”
Differentials — the discount applied to heavy oil — have shrunk amid higher demand for Canadian production by refineries in the U. S. Gulf because of the continuing decline in imports from Mexico and Venezuela, Rogers said.
Tight oil may be getting all the market’s attention, but “quietly the Canadian oilsands are bringing on some highly economic barrels,” from projects that last decades, while tight oil de- pletes in one or two years and has to be quickly replaced, he said.
Alister Cowan, chief financial officer of Suncor Energy Inc., which last year took control of its historic competitor, the Syncrude project, said oilsands consolidation makes the business more competitive, not less. Suncor is integrating its operations with those of Syncrude and looking at all aspects to reduce costs, from greater automation to changing how it uses suppliers.
As oil prices recover, “we expect modest cost increases, but no real inflationary pressure, unlike what you see down in the U.S.,” he said.
If oil prices stay in the US$ 50- a- barrel range, Suncor would generate a lot of free cash flow after completing its Fort Hills oilsands and Hebron offshore oil projects and would look at further dividend increases, Cowan said.
Rob S y monds, chief operating officer of Husky Energy Inc., said the ramp up of production at its Sunrise oilsands project is continuing, but his company wants to remain diversified across its portfolio, which includes gas in Asia and heavy oil in Saskatchewan.
Husky expects to hold on to about 70 per cent of the costs savings won during the oil price downturn because there has been a structural change, he said.
The downside is t hat many people have left the industry, which has compromised the industry’s ability to operate drilling rigs, he said.
“As an industry there is a legitimate issue on whether people will come back,” he said.