The growth ambitions of Canada's oil sands companies are on display across Alberta, where construction crews blanket the province's massive oil zone.
But these days, when investors look out over the beehive of building in the oil sands, they see risk.
Energy investors are taking a hard look at construction costs across the sector, particularly now that oil prices have pulled back sharply from the spring surge.
Concerns about costs help explain why share prices of some of the big oil sands players have been battered in recent months.
Shares of Suncor Energy Inc. and Canadian Natural Resources Ltd., for example, have approached levels last seen two years ago when oil prices were in freefall. As energy companies release their third-quarter results over the coming weeks, investors will be extra sensitive to any surprises on the cost front.
Slews of oil sands companies are expanding, from established names like Suncor to growing startups like MEG Energy Corp.
Global giants Exxon Mobil Corp., Royal Dutch Shell PLC, and PetroChina Co. Ltd., the world's three largest publicly traded energy companies, are pouring billions of dollars into the region.
Growth plans are usually what investors want to hear, but energy companies are at risk of being penalized for those plans if oil prices go much lower. When oil plummeted in late 2008 and into 2009, several major oil sands companies halted construction projects and shelved plans. Today, many investors are skittish about new projects unless oil prices remain near the $100 (U.S.)-per-barrel level.
"The biggest challenge [oil sands companies]have is investor perception that they need high oil prices to generate investment returns, particularly for their new projects," Randy Ollenberger, a senior energy analyst at BMO Nesbitt Burns in Calgary, said. "There is also a fear of rising costs. So you kind of get squeezed from both sides."
Suncor has been particularly hard hit, with its shares stumbling to $30.69 (Canadian) at Friday's close from above $45 early this year. Investors are picking on Suncor, Mr. Ollenberger said, because it is one of the energy companies with spending plans reaching into the billions of dollars and is dependant upon its success in Fort McMurray for growth.
Investors' concerns rest largely on "… oil price expectations, and that this is a company that is spending massive amounts of capital expanding its oil sands business, and if they see some cost inflation, they are going to see it in spades," Mr. Ollenberger said.
But Rick George, chief executive officer of Suncor, says oil prices in the triple digits are not necessary.
"We don't need $100 crude to make these projects work. We right now are actually in a good zone, despite what the market kind of says about stock prices," he told reporters this month before a banquet honouring him as the Energy Council of Canada's Energy Person of the Year. "Our company is going to have a great year this year, our growth plans are intact, and I don't see anything changing those currently."
Suncor, he said, should not be judged just on the price of West Texas Intermediate crude, the North American benchmark, because the company also sells oil on the other side of the Atlantic, benefitting from Brent crude's stronger price. Suncor's average realized price, Mr. George noted, is "somewhere in the middle of those two."
The company, he added, weighs its plans against long-term commodity price expectations rather than today's going rate, through he would not reveal Suncor's long-term price prediction.
Mr. Ollenberger thinks Suncor's expansions can turn a profit with oil around $85 (U.S.) a barrel because its expensive growth projects like the Fort Hills and Joslyn mines will be offset by less pricey expansions at its Firebag and MacKay River operations.
John Williamson, a partner at PricewaterhouseCoopers LLP in Calgary, believes energy companies are caught in the market's widespread downdraft, and investors should be more discerning before discarding oil sands stocks when searching for safe cover.
"If you think about the track record of a lot of the companies in this sector, they have all done very, very well over the years, especially the ones in oil sands, who are very good at running the plants," he said. "They typically don't have a lot of upsets in the operation."