The Oil Sands' Silent Boom

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"It is clear that the dark days of 2009 are now in the past."

In the span of a few quarters, the oil sands have managed an impressive reversal. The rebound has been gradual and grabbed few headlines as companies take a measured, deliberate approach to expansions. But a silent boom has spread across the energy industry, creating both new flickers of confidence—and a surprisingly loud echo of the problems that weighed on company finances and crippled some firms with oil-production plans that proved too ambitious.

The cost of building a new oil sands project now exceeds levels seen at the height of 2008, when oil hit $147/barrel (U.S.) and Fort McMurray was at the center of a raging inflation wildfire. Suppliers that were offering 10%–40% discounts last year have almost entirely clawed back those reductions. The number of workers in oil sands camps has topped the peak in 2008. After a year, home prices in the oil sands headquarters are back within spitting distance of their apex.

The current surge is founded in part on the remnants of the last boom. Add up recent developments, and it is clear that the dark days of 2009 are now in the past. The Canadian Energy Research Institute calculates that in late 2008 and 2009, companies paused or abandoned 1 million bpd of production. Since then, they have brought back to life 1.4 million bpd—a substantial increase. As workers return to northeastern Alberta, so is the belief that the bad times are over.

Those close to the recovery caution that it may be frail. If oil prices fall again, work could once more be halted. And this boom is substantially different from the last one, when costs were rising by double-digits every year, and companies were forced to double capital budget estimates. Executives say inflation today is nearer 5%/year.

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