| CALGARY, Alberta
CALGARY, Alberta Jan 20 Canada's oil sands
companies are perilously close to operating at a loss after six
months of plunging crude prices, yet many say they have no plans
to cut production at their vast projects in northern Alberta.
On the contrary, Syncrude and Canadian Natural Resources Ltd
are planning to boost production, in the expectation
economies of scale will cut their cost per barrel.
With U.S. crude diving below $45 a barrel last week,
companies including Syncrude Canada, Suncor Energy Inc
and Imperial Oil Ltd are getting close to operating
costs exceeding outright Canadian crude prices.
But these oil sands giants, which have billions of dollars
sunk in existing projects, say they have no intention of
shutting down operations, preferring to generate whatever cash
they can from sales.
A favourable exchange rate is also providing some relief, as
producers pay costs in Canadian dollars and receive more
valuable U.S. dollars for their crude.
Syncrude forecasts operating costs at C$45.69 ($38.07) per
barrel in 2015. Oil sands crude trades at a discount to the West
Texas Intermediate benchmark and the outright synthetic
price dropped below $42 a barrel at one point last week.
Siren Fisekci, spokeswoman for Canadian Oil Sands Ltd
, the largest-interest owner in the project, said
Syncrude would ramp up rather than scale back output.
"Syncrude has operated for 35 years and at other prices in
the crude oil cycle," Fisekci said. "We'll put as much
production as possible through the plant."
CNRL, which produces 128,000 bpd of synthetic crude at its
Horizon project, expects oil sands mining operating costs of
C$34-$37.00 ($28.33-$30.83) a barrel this year.
It is forging ahead with an extra C$6 billion of investment
to double capacity at Horizon by late 2017 and targeting
operating costs of C$25-$27 a barrel.
Spokeswoman Julie Woo said at this point it would be more
costly to defer the expansion. Instead the company has deferred
a new thermal project, decreed a hiring freeze and cut back 2015
Imperial Oil, owner of the 110,000 bpd Kearl mine, does not
upgrade most of its bitumen and receives an even deeper discount
on its crude. The outright price of Western Canada Select, the
de facto heavy crude benchmark, slumped to just above $33 a
barrel last week, nearing Imperial's 2013 per barrel operating
cost of C$32.30 ($26.91).
Oil sands operating costs are above those of most
conventional resource plays because of their energy intensity
and the spiralling cost of labor in Canada's north.
Andrew Leach, professor of energy policy at the University
of Alberta, estimates operating costs per barrel for mining
projects have quadrupled in the past decade as producers compete
for workers to build and operate huge facilities in a sparsely
In comparison, Saudi Arabia can produce crude for just a few
dollars a barrel.
Leach said oil sands producers tend to assume that operating
costs will come down each quarter as technology and efficiency
improve, another factor discouraging companies from cutting
"Rightly or wrongly the psychology within most operations is
'Costs are high for now but we will sort it out'," Leach said.
"You would need a significantly lower price with pretty long
running expectations that it will continue to see (production)
Thermal projects - which pump steam into underground
reservoirs to liquefy bitumen so it can flow to the surface -
tend not to upgrade bitumen and are also feeling the pinch.
Canada's largest oil and gas company Suncor Energy lumps
operating costs for oil sands mining and thermal projects
together and forecasts C$30.00-$33.00 ($25.00-$27.50) a barrel
Suncor expects to sell 120,000-140,000 bpd of bitumen this
year and 285,000 to 315,000 bpd of synthetic crude.
The company kept 2015 production forecasts unchanged last
week even as it announced 1,000 job cuts and slashed capital
spending by C$1 billion.
"It's hard to imagine us cutting or shutting in production
as 80 percent of our costs in oil sands are fixed," said Suncor
spokeswoman Sneh Seetal.
Small oil sands companies are in more trouble. Struggling
Southern Pacific Resource Corp had operating costs of
C$46.03 ($38.35) for bitumen in the third quarter of 2014 and
said on Dec. 30 it will miss an interest payment on its debt.
But whether operating at a profit or loss, companies are
loath to switch off the steam at thermal projects, as it can
take weeks to get the reservoir back up to optimum pressure.
During the last oil crash in 2008/09 the only company to
shut in production was Connacher Oil and Gas when
outright WCS was close to $25 a barrel. The company's share
price has struggled to recover ever since.
(Additional reporting by Scott Haggett; Editing by Jeffrey
Hodgson and Tomasz Janowski)