Most Canada oil sands crude being produced at a loss -report

Thu Aug 20, 2015 5:58pm EDT
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By Nia Williams

CALGARY, Alberta Aug 20 (Reuters) - More than three-quarters of Canada's daily output of 2.2 million barrels of crude from oil sands is being produced at a loss at current prices, research from analysts at TD Securities shows, although producers are unlikely to halt operations.

Only two mining and upgrading projects - Canadian Natural Resources Ltd's Horizon project and Suncor Energy's Millennium mine - are producing synthetic crude for less than its current outright price around $36 a barrel, analyst Menno Hulshof said on Thursday.

Every thermal oil sands player is bleeding cash on every barrel produced with U.S. crude around $41 and the Canadian heavy benchmark, Western Canada Select (WCS), around $24 a barrel, according to a report released by the bank on Wednesday.

That means only around 450,000 barrels per day of oil sands production is in the black, a bleak picture for the region which holds the world's third-largest oil reserves but is also saddled with high operating costs.

There are two types of oil sands projects: thermal projects, in which steam is pumped underground to heat reservoirs so tarry bitumen can flow to the surface, and strip-mining projects. Most mining projects upgrade the bitumen into refinery-ready synthetic crude, while thermal projects tend to blend the bitumen into lower-priced heavy crude such as WCS.

The TD research took the average costs of some of the most efficient thermal operations, such as Cenovus Energy and MEG Energy's Foster Creek and Christina Lake projects, and concluded they need U.S. crude above $43 to make money. U.S. crude futures settled on Thursday at $41.14 per barrel.

At $41, companies struggle to cover the cost of operating, royalties, transportation and blending.   Continued...