Oil Sands Operating Costs Don't Reflect Falling Oil Price
Source: Bloomberg, Marianne Stigset (6/1/10)
"BPD capital costs climbed to $35K from $12K. . .at the start of the decade."
"Both operating expenditures and maintenance capital have been on a rising trend and when oil prices accelerate, that trend accelerates along with it and we got a very good taste of that in the last five years," Marcel Coutu, CEO of Canadian Oil Sands said today at an Oslo conference. "When oil prices crash, those operating costs unfortunately lag and it takes some time for them to come down."
Labor costs have led an across-the-board increase, Coutu said in an interview. Weekly earnings in Alberta's oil and gas industry have climbed 50% from 2002 to about $1,800, according to the Canadian Association of Petroleum Products. For new projects, the capital costs per daily barrel of oil have climbed to $35,000 from $12,000–$15,000 at the start of the decade, Robert Skinner, senior vice president at Statoil said.
The Norwegian company estimates break-even prices for projects using steam assisted gravity drainage technology at $65–$75 a barrel, Skinner said. Cost for new supply is at $60–$80 a barrel, depending on whether it's from drilling or mining.
Dwindling reserves in easier-to-access areas and rising oil prices are making sand and shale developments more attractive to producers. Canada's oil sands, a mixture of sand, clay, water and a heavy oil called bitumen, contain the world's second-largest proven concentration of crude at about 170 billion barrels.
Oil, which rallied 78% in 2009, has dropped 9% this year to about $72 a barrel in New York trading.