Canadian oil sands firms mull once unthinkable: curbing output
By Nia Williams
CALGARY, Alberta Feb 23 (Reuters) - With Canadian benchmark crude near record lows, some major oil sands producers are starting to consider slowing output at their huge thermal operations in northern Alberta, a process fraught with technical and financial difficulties.
Cutting production is one of the least appealing options for producers who have invested billions of dollars and years of work in carefully-engineered bitumen reservoirs and fear doing permanent damage to sites designed to operate for decades.
Two producers, Cenovus Energy and MEG Energy - both among the most efficient producers in the patch - say they do not see the need to act yet, but have plans for reducing volumes if oil prices fell further and stayed there.
Expensive technology needed to pump high-pressure steam to unlock bitumen deposits mean Alberta's oil reserves - the world's third-largest - have some of the highest overall production costs, well above the present price of around $18 a barrel for benchmark oil sands crude. (Graphic: reut.rs/1Rc4Tjm)
The producers, however, focus on their operating costs, wary of high potential costs of cutting and later cranking up production and the risk of upsetting the delicate balance needed to pump out heated bitumen when wells get idled for too long.
MEG Chief Executive Bill McCaffrey said the company could slow output by letting its Christina Lake oil sands reservoir enter natural decline if it was unable to cover variable cash operating costs of around C$4 a barrel for a sustained period.
In the fourth quarter of 2015, when Canadian heavy crude averaged $27.7 a barrel, the revenue MEG got for a barrel of oil once blending, transportation, operating expenses and royalties are taken into account, was just over C$9. With benchmark Canadian crude trading around $10 a barrel lower so far this year, that revenue is almost certainly insufficient to cover the cash costs.
Cenovus Chief Executive Brian Ferguson told Reuters earlier this month U.S. benchmark crude would have to stay below $27 a barrel well into 2017 for slowing production to make economic sense, but was prepared for such a possibility and had plans to reduce volumes if needed. Continued...