Canadian Oil Producers Look to Squeeze Costs Even Further

Low crude prices present a great opportunity to drive down oil sands costs even further, adding to the 25 percent savings so far this year, some of Canada's largest producers said on Tuesday.

 

The bitumen deposits in Alberta's vast oil sands are the world's third-largest crude reserves, but are more expensive to produce than conventional oil because of their energy intensity and the high cost of labour in northern Canada.

 

Oil sands operating costs have already been squeezed as much as 25 percent at some projects, as global crude prices plummeted from more than $100 a barrel in June 2014 to around $45 a barrel in March.

 

But Cenovus Energy Inc's Harbir Chhina, executive vice president of oil sands at Canada's No. 2 independent producer, said the company could cut costs by 30 percent.

 

"As long as oil doesn't go back to $80 I think we have got a great opportunity to cut our capital operating expenses by 30 percent and improve the return in the oil sands at $50 to $60 (a barrel) WTI. That's what we are gearing up to," Chhina said on a panel at a conference in Calgary.

 

That was echoed by Ryan Kubik, chief executive of Canadian Oil Sands Ltd, who owns the largest share of the Syncrude project, which expects 2015 operating costs to be C$39.48 a barrel, down from C$45.69 at the start of the year.

 

Kubik said the company had modified shift schedules to reduce overtime costs, renegotiated contracts with suppliers, cut the number of contractors on site and restructured incentive and retention programmes to reduce wage rates.

 

MEG Energy Corp is concentrating on growing production through brownfield expansions of its oil sands facilities, rather than building new "greenfield" projects.

 

"We have a number of greenfield endeavours that are on the books and are permitted, at this point in time we do not plan on moving ahead with those. We actually feel through brownfield expansion we can average 10,000-20,000 barrels per day per phase," said John Rogers, MEG's vice president of investor relations.

 

The potential for hefty cost reduction is not just limited to oil sands, said Corey Code, treasurer at conventional oil and natural gas producer Encana Corp, who was also speaking on the panel.

 

"It does provide a bit of a window of opportunity for you to attack cost structures, that was not necessarily there when oil was at $100," Code said.