Strongest will survive in oil sands

30 September 2015, News Wires – A global decline in commodity prices has not scared away some of the world’s biggest explorers from Canada’s oil sands sector, lured by its long-term potential to produce and its ability to rebound.

suncor energy oil sands generalAlthough restructuring in the form of layoffs and cost-cutting measures have fast become the norm for oil sands juniors and majors alike, some companies have looked at the downturn as an opportunity to increase portfolios and take advantage of cuts in supply costs.

Suncor Energy has proven to be the most resilient, putting more than C$5 billion (US$3.8 billion) on its balance sheet after cutting 1000 employee and contractor jobs in January and slashing its capital budget twice since November to range between C$5.8 billion and C$6.4 billion.

Meanwhile, juniors such as Southern Pacific Resources and Laricina Energy were forced to seek bankruptcy protection earlier this year after failing to raise enough capital to continue. Suncor chief executive Steve Williams said the company’s “integrated model” has increased its cash on hand. At a conference earlier this month he said the time is right to pick up assets because many producers are struggling to stay afloat.

Adding credence to his claims, Suncor announced a C$310-million deal to acquire an additional 10% in the Fort Hills oil sands mining project from its partner Total.

The French supermajor said it was reducing its exposure to Canadian oil sands in light of current market conditions, although it retains a 29.2% stake in Fort Hills and said it is focusing on its interest in the 109,000-barrel-per-day Surmont 2 steam-assisted gravity drainage project, which began production this month.

The project is a 50:50 joint venture with ConocoPhillips, which also sees a future in the oil sands despite low pricing.

While announcing plans to sell some Western Canadian assets, it has not confirmed any of those to be in the oil sands.

This is not the first recession the oil sands has seen, and it will not be the last.

The only certainty is the oil sands will continue to produce, and the strongest companies with the greatest long-term vision will survive.

  • Tonya Zelinksy, Upstream
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