Price drop seen as no threat to oil sands expansion

Thu Sep 22, 2011 5:02pm EDT

Related Topics

* Oil drops on economic fears

* TSX energy index at lowest in more than 2 year

* Oil sands project still profitable at current prices

CALGARY, Alberta, Sept 22 (Reuters) - A sharp drop in oil prices is no threat to plans to accelerate development of northern Alberta's oil sands even as it pushes the shares of Canada's biggest oil producers sharply lower, an analyst said on Thursday.

Fears of a new recession, spurred by weak manufacturing data from China and a glum outlook on the U.S. economy issued on Wednesday by the U.S. Federal Reserve, pushed benchmark North American crude futures down by $5.41 to $80.521 a barrel, the lowest level since Aug. 9.

The price drop sent the shares of Canada's biggest oil producer, Suncor Energy Inc (SU.TO), tumbling. Suncor fell C$1.92, or 6.8 percent, to C$26.21 on the Toronto Stock Exchange.

Shares of Suncor's rivals were also sharply lower. Nexen Inc NXY.TO dropped 86 Canadian cents, or 5 percent, to C$16.42, and Husky Energy Inc (HSE.TO) fell 99 Canadian cents, or 4.3 percent, to C$21.94. The Toronto market's index of energy shares .SPTTEN fell 4.7 percent to 243.01, its lowest level in more than two years.

Though the lower prices will bite into profits, they are unlikely to force the big producers to winnow down plans to expand their oil sands operations, said Andrew Potter, an analyst at CIBC World Markets.

The oil sands of northern Alberta are the world's third-largest crude reserve. Production from the region is expected to rise to 2.1 million bpd by 2015 from about 1.5 million bpd currently.

Integrated oil companies such as Suncor and Husky, which produce and refine oil are still making rich profits on the sale of gasoline and other refined products, while big oil sands projects are still profitable at current oil prices, Potter said.

"The integrated and the big oil sands (companies) would probably need to oil move below $70 a barrel before we'd see any big cutbacks on oil sands spending," he said.

"The integrateds are still getting big cash flow from downstream, liquidity is in good shape, balance sheets are in good shape ... so for the big long-term projects we're not going to see cutbacks yet."

($1=$1.03 Canadian) (Reporting by Scott Haggett; editing by Peter Galloway)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.