By OGJ editors
HOUSTON, Sept. 29 -- The outlook for Canadian oil sands growth continues to improve, although the next 2 years could prove critical as oil companies face the risks of increasing cost overruns and project delays, said Friedman, Billings, Ramsey & Co. Inc.
In a Sept. 29 research note update on oil sands, an FBR analyst said increasing project proposals also increase the risk profile for the Canadian oil sands because of an existing tight labor market already.
"We believe that the risks of cost overruns and project delays will be increasing over the next 2 years, with the greatest risk being borne by those who have yet to firm up their cost estimates and to order key critical equipment," said Amir Arif, FBR senior vice-president.
He estimates 25-30% cost inflation from 2004 levels for new projects that will be firmed up in 2007 with risk of an additional 10-20% cost overruns related to labor, steel, and line pipe costs, along with infrastructure and logistic issues.
Noting that the number of oil sands projects planned in Alberta have been steadily climbing, FBR estimates the cumulative capital to be spent in the oil sands, based on announced projects, amounts to more than $125 billion (Can.) This is a 140% increase from FBR's 2003 estimate of $52 billion.
The increase is a result of both new projects being announced and additional cost pressures on previous cost estimates, Arif said.