Tar Sands Sector Shakeout Under Way, With Prices Collapsing To Less Than $30/Barrel
Bloomberg) -- The collapse in the market for Canada’s heavy crude below $30 a barrel last week is hammering home a harsh reality for the nation’s oil-sands producers: There’s no one to save them this time. Unlike previous market crashes that were relatively short-lived, the combination of persistent oversupplies and weakening demand are dealing a severe setback to what’s been one of the biggest growth stories in global energy markets. Oil-sands companies such as Suncor Energy Inc. already have been rethinking major developments that can require more than C$10 billion ($8 billion) in investment. Now even existing projects are barely covering costs or in a losing position.
“This is a major test of the industry,” said John Stephenson, chief executive officer of Stephenson & Co. in Toronto, a money management firm. “It’s going to be sustained, it’s going to be ugly and it’s going to go on longer than people think.” Long a resource investor, Stephenson is right now shorting energy stocks as he bets on more price pain.
When the price of Canadian crude fell to similar depths in 2009, U.S. monetary policy helped prevent a financial crisis from deepening and boosted demand for oil, setting the stage for a relatively swift recovery. This time around, there’s no end in sight to the oil glut, leaving companies no choice but to drastically cut costs to survive.
The rule of thumb for new projects in Canada’s oil sands is that a West Texas Intermediate crude price of about $80 a barrel is needed to earn a return. The paste-like fossil fuel from northern Alberta is selling at a discount of about $13 a barrel compared to U.S. crude, which is now well under $50. Western Canadian Select oil closed Friday at $33.62.
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http://www.bloomberg.com/news/articles/2015-03-23/oil-sands-tested-as-today-s-rout-is-far-cry-from-wildcat-years
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