Capital spending cuts delay oil sands projects

Sam Fletcher
Senior Writer

HOUSTON, Oct. 31 -- Suncor Energy Inc. and Petro-Canada are trimming their capital expenditure budgets and delaying some of the plans for their oil sands production projects next year.

After "a thorough review" of financial market conditions, Suncor directors reduced their 2009 capex budget to $6 billion (Can.) from an earlier proposed $10 billion. Of that budget, $3.6 billion, or 60%, is earmarked for the company's development of its $20.6 billion Voyageur oil sands project.

Suncor will scale down investment and construction of its Voyageur upgrader, delaying its completion until 2013 rather than 2012 as earlier planned. The delay means Suncor can finance more of the upgrade project out of cash flow rather than rely on increasingly skittish debt markets.

The Fort Hills consortium headed by Petro-Canada said it also will delay building a planned upgrader and instead will construct only its planned oil sands mine at its $23.8-billion Fort Hills project. The Suncor and Petro-Canada projects are among the most expensive projects ever undertaken in Canada.

Upgraders are processing facilities that turn oil sands bitumen into a lighter, synthetic product that can be processed by more refineries. Alberta is anxious to ensure that the costly upgraders are built within the province, rather than in the US, to generate more local jobs.

"Our aim is to ensure we are living within our means during a time of market uncertainty, while also making the strategic spending decisions that will allow us to continue on our growth path," said Rick George, president and chief executive officer.

Suncor 2009-10 projects
Suncor's 2009 plan maintains spending and construction timelines for the third and fourth stages of its Firebag in-situ operations, part of the $20.6 billion Voyageur strategy. Completion of the two stages (in 2009 and 2010, respectively) is expected to increase bitumen production and future cash flow.

Stages 5 and 6 are at "relatively early phases" of development, so spending and scheduling plans can respond to market conditions. "We remain committed to an integrated expansion strategy and targeted oil sands production of 550,000 b/d, said George.

In addition, Suncor plans to spend $2.4 billion in support of its base business. Some 1.7 billion is targeted for the company's oil sands operations, including new extraction facilities and various projects to improve the reliability and productivity of oil sand properties. Investments in emission-control equipment also will continue in 2009.

Suncor will spend $300 million on exploration and production and $400 in maintenance and environmental improvements in its refining and marketing operations. It expects similar levels of capital spending through 2012. Suncor will finance its capital spending through undrawn credit facilities and cash flow from operations.

Fort Hills project
The Fort Hills consortium—Teck Cominco, UTS Energy, and project operator Petro-Canada—said last month the cost of its oil sands project had escalated more than 50% to $21 billion—$19.6 billion (US)—in just over a year to more than the combined $19 billion market value of the consortium partners, forcing them to find ways to reduce capital expenditures.

Oil prices have fallen by more than half from a July high of $147/bbl (US). Some say the economics of integrated oil sands projects require long-term prices of $85/bbl for a solid rate of return. Meanwhile, the difference between bitumen and synthetic crude has narrowed, leaving less value for the facilities to capture.

Oil sands outlook
According to the Canadian Association of Petroleum Producers, current oil sands production is 1 million b/d and was expected to increase to 4 million b/d by 2020. Current oil sands production is about 1 million b/d of oil. The largest of three oil sands deposits in Alberta is at Fort McMurray; the other two are at Peace River and Cold Lake. There are more than 20 active mining and in-situ oil sands projects in those areas.

Some analysts are anticipating a 10-15% drop in capital spending in western Canada next year as producers try to remain within their cash-flow expectations. To many observers, this is a sign that low oil prices are starting to discourage new investment. Projects that were feasible a year ago no longer seem economic in the current environment. Other companies, including the Nexen Inc.-OPTI Canada partnership and privately held BA Energy Inc., announced delays at smaller projects in recent weeks.

Olivier Jakob, Petromatrix, Zug, Switzerland, earlier reported, "Medium to small size E&P companies have started to be hurt by the credit crunch and are now starting to be hurt by limited cash flows linked to the lower oil prices."

On the other hand, the project postponements may mean the end to Alberta's spiraling costs due to the scarcity of workers and material in Alberta. Some say such shortages have escalated the price of new projects and crippled regional productivity. Some now predict workers will be available at lower salaries in 6 months.

Contact Sam Fletcher at samf@ogjonline.com.

Related Articles

BLM finalizes oil shale regulations; leasing unlikely for 5-10 years

11/28/2008 The US Bureau of Land Management published final regulations on Nov. 17 to establish a commercial oil shale development program on public lands in ...

'Alaska's methane hydrates can be developed now'

11/28/2008 US Sen. Lisa Murkowski (R-Alas.), on Nov. 12 in response to a US Geological Survey report indicating that up to an additional 157.8 trillion cubic ...

USGS estimates 2.4 Tcf of gas lies beneath eastern Oregon, Washington

10/31/2008 An estimated 2.4 trillion cubic feet of natural gas and 9.8 million bbl of natural gas liquids lie beneath eastern Oregon and Washington, the US Ge...

DOE successfully generates electricity from producing well's hot water

10/24/2008 Electricity has been generated successfully from a producing oil well's geothermal hot water for the first time, the US Department of Energy's Foss...

USGS estimates Alaskan North Slope contains 85.4 Tcf of producible gas hydrates

10/24/2008 There are approximately 85.4 trillion cubic feet of undiscovered, technically recoverable natural gas resources within gas hydrates on Alaska's Nor...

Senate rejects economic stimulus bill with oil shale moratorium

10/03/2008 The US Senate defeated an economic stimulus bill with a provision to extend a moratorium on federal oil shale leasing by 52 to 42 votes on Sept. 26...

Reactions are mixed as BLM issues programmatic EIS for oil shale

09/12/2008 The US Bureau of Land Management issued a final programmatic environmental impact statement on Sept. 4 to guide the use of public land containing o...

Senate, House members pledge action following independent oil speculation study

09/12/2008 An independent report showing that record amounts of speculative investment drove oil prices to record peaks in 2008 confirms that stronger market ...

2008 Republican platform's energy, environment planks contain no surprises

09/05/2008 Republicans adopted a 2008 national campaign platform on Sept. 1 which included a call to "aggressively increase our nation's energy supply in an e...
White Papers

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by

Squeezing the Green: How to Cut Petroleum Downstream Costs and Optimize Processing Efficiencies with Enterprise Project Portfolio Management Solutions

As the downstream petroleum industry grapples with change in every sector and at every level, includin...
Sponsored by

7 Steps to Improve Oil & Gas Asset Decommissioning

Global competition and volatile markets are creating a challenging business climate for project based ...
Sponsored by

The impact of aging infrastructure in process manufacturing industries

Process manufacturing companies in the oil and gas, utilities, chemicals and natural resource industri...
Sponsored by

What is System Level Thermo-Fluid Analysis?

This paper will explain some of the fundamentals of System Level Thermo-Fluid Analysis and demonstrate...

Accurate Thermo-Fluid Simulation in Real Time Environments

The crux of any task undertaken in System Level Thermo-Fluid Analysis is striking a balance between ti...
Available Webcasts


Prevention, Detection and Mitigation of pipeline leaks in the modern world

When Thu, Apr 30, 2015

Preventing, detecting and mitigating leaks or commodity releases from pipelines are a top priority for all pipeline companies. This presentation will look at various aspects related to preventing, detecting and mitigating pipeline commodity releases from a generic and conceptual point of view, while at the same time look at the variety of offerings available from Schneider Electric to meet some of the requirements associated with pipeline integrity management. 

register:WEBCAST



On Demand

Global LNG: Adjusting to New Realities

Fri, Mar 20, 2015

Oil & Gas Journal’s March 20, 2015, webcast will look at how global LNG trade will be affected over the next 12-24 months by falling crude oil prices and changing patterns and pressures of demand. Will US LNG production play a role in balancing markets? Or will it add to a growing global oversupply of LNG for markets remote from easier natural gas supply? Will new buyers with marginal credit, smaller requirements, or great need for flexibility begin to look attractive to suppliers? How will high-cost, mega-projects in Australia respond to new construction cost trends?

register:WEBCAST


US Midstream at a Crossroads

Fri, Mar 6, 2015

Oil & Gas Journal’s Mar. 6, 2015, webcast will focus on US midstream companies at an inflection point in their development in response to more than 6 years shale oil and gas production growth. Major infrastructure—gas plants, gathering systems, and takeaway pipelines—have been built. Major fractionation hubs have expanded. Given the radically changed pricing environment since mid-2014, where do processors go from here? What is the fate of large projects caught in mid-development? How to producers and processors cooperate to ensure a sustainable and profitable future? This event will serve to set the discussion table for the annual GPA Convention in San Antonio, Apr. 13-16, 2015.

This event is sponsored by Leidos Engineering.

register:WEBCAST


The Future of US Refining

Fri, Feb 6, 2015

Oil & Gas Journal’s Feb. 6, 2015, webcast will focus on the future of US refining as various forces this year conspire to pull the industry in different directions. Lower oil prices generally reduce feedstock costs, but they have also lowered refiners’ returns, as 2015 begins with refined products priced at lows not seen in years. If lower per-barrel crude prices dampen production of lighter crudes among shale plays, what will happen to refiners’ plans to export more barrels of lighter crudes? And as always, refiners will be affected by government regulations, particularly those that suppress demand, increase costs, or limit access to markets or supply.

register:WEBCAST


Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected