Alberta's leading oil sands producers are currently working on ways to reduce the sustaining capital for their projects in order to maintain global competitiveness and also attract investment, executives said Tuesday.
Sustaining capital is the expenditure needed to keep an asset operating at its current level.
With a sustaining capital of C$9/b to C$11/b ($7.05/b to $8.62/b), Cenovus Energy is trying to reduce it to "just a single" digit, Chief Financial Officer Ivor Ruste told the 2016 CAPP Scotiabank Investment Symposium in Toronto.
A similar target is also on the radar of its fellow producer Suncor Energy, which currently requires an investment of C$5/b to C$10/b for maintaining output from its steam-assisted gravity drainage oil sands facilities in the province, CFO Alister Cowan told attendees, adding that just under C$3 billion has been set aside in 2016 as sustaining capital for the company's oil sands operations.
The companies' costs are being cut by reductions in drilling costs and headcounts, focusing more on brownfield rather than greenfield developments and cutting input costs like diluents and replacing them with lower-priced solvents, they said.
Diluents are needed to transport bitumen through pipelines by making it more viscous and thus easier to ship.
"The cost of drilling is about C$9 million/well pair [for a SAGD oil sands facility] and our target now is to try to bring it down to C$7 million/well pair over the next 18 months," Ruste said.
Cenovus is also working on the use of solvents, like propane and butane, to reduce its costs and its environmental footprint, with the aim of reducing the breakeven costs for its oil sands projects to WTI at $40/b from WTI at $50/b, he said.
NEW SHAPE FOR OIL SANDS PROJECTS
An uptick in oil prices is unlikely to restart several major projects that had been on the back burner since early 2015, Cowan said.
"The projects that were planned to be built in the boom times [of capacity in excess of 100,000 b/d] will not come back," Cowan said. "Projects will get smaller and we see more focus on SAGD developments due to the lower carbon footprint."
Cenovus, which postponed the 130,000 b/d Narrows Lake and 150,000 b/d Grand Rapids developments in northern Alberta, will start with Narrows Lake to leverage infrastructure already built for its neighboring Christina Lake facility, Ruste said.
Another oil sands producer, MEG Energy, which currently has an output of about 80,000 b/d from its Christina Lake project, will also focus on adding new production capacity through brownfield expansions, CFO Eric Toews said.
"We have regulatory approval to increase capacity to 110,000 b/d and will increase it further to 210,000 b/d while keeping an eye on cost structures," Toews said. "But future growth will be the brownfield way."
Suncor is also planning to new production capacity of at least 300,000 b/d by 2022 from its Fort Hills, Meadow Creek and Lewis projects. But growth beyond that timeline will depend on the "progress being made in building new pipeline capacity," Cowan said.
With a current oil sands output of about 2.3 million b/d, Alberta remains on track to increase production capacity to 3 million b/y by 2020. But future growth will be decided by new pipeline takeaway capacity, Jackie Forrest, a vice president with ARC Financial told the symposium.
The "cash flow of Canadian producers in 2016 will be the lowest in 20 years," she said, without giving a figure. "WTI at $40/b is not a price where producers will invest."
