Canada oil sands plans get revamped as oil falls

Thu Oct 23, 2008 4:53pm EDT
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By Jeffrey Jones and Scott Haggett

CALGARY, Alberta (Reuters) - Companies developing Canada's oil sands, one of the world's largest deposits of crude oil, said on Thursday they aim to cut spending on multibillion-dollar projects in response to tumbling oil prices and the financial meltdown.

Petro-Canada, operator of the proposed C$21 billion-plus ($17 billion-plus) Fort Hills project, said it may first sell raw bitumen from its Alberta mine and defer the upgrading plant that turns the crude into light synthetic oil. Its shares jumped 5 percent.

Suncor Energy Inc said it will slow near-term spending on its C$20.6 billion expansion, delaying completion of its own new upgrader by a year. It also cut its 2009 budget by a third.

The cuts are the latest to hit Canada's energy sector, where fortunes have soured quickly as oil demand has dwindled, more than halving prices in a three-month span to current levels below $70 a barrel.

"I think everybody knew that the wheels were going to come off to some degree, but the collapse of the credit markets has just accelerated all of this," Dundee Securities analyst Menno Hulshof said.

"I don't think that anybody in a million years thought oil prices were going to come off as hard as they did and that the larger players were going to have to make these difficult decisions."

Some analysts have said new oil sands projects require oil prices above $80 to earn an acceptable return.

Petro-Canada reported its third-quarter net earnings jumped 61 percent to C$1.3 billion, or C$2.58 a share, meeting expectations as oil prices hit a record in the summer before the financial meltdown began.   Continued...