The country's biggest energy companies are proving the most capable operators in Alberta's high stakes, high profile oil sands.
As oil and gas companies earmark billions of dollars to developing oil sands properties, analysts at Peters & Co. published a report on Wednesday that outlined the economics of the projects, and ranked players in Alberta on their efficiency. Peters & Co. largely focused on companies that use steam assisted gravity drainage or SAGD to extract crude, as that's the most common approach to getting at this oil.
Let's start with who tops these ratings: The companies that do the best job on productivity and costs are Calgary-based Cenovus Energy, Imperial Oil and Suncor, along with one U.S. company, Devon Energy. Privately owned MEG Energy also fared well on these measures.
Companies that are struggling with reliability and costs are the mid-tier players in this space: Husky Energy, at its Tucker and Pikes Peak projects, and Nexen and OPTI Canada, which owns the Long Lake play.
Now, here is what Peters & Co. found out about the cost of working in the oil sands: it's more expensive than expected, and oil production tends to fall short of projections. This news has all the shock value of a home reno that comes in over-budget and behind schedule.
"Based on historical results, it is evident that the average SAGD project is not achieving design rates," said the Peters & Co. team. As a result, the investment dealer re-worked its model for oil sands development. The analysts bumped up the non-fuel costs of a project to $11.50 for every barrel of oil produced. Peters & Co. also cut the reliability of operations to 80 per cent of projections - the analysts were using 90 per cent reliability rates.
In one positive change for companies working in northern Alberta, the analysts lowered the expected cost of capital for oil sands projects by 10 per cent.
After crunching all the numbers, Peters & Co. estimated SAGD projects need crude oil price of $55 (U.S.) a barrel to break even, up from the dealer's previous estimate of $50. This assumption is based on a 10 per cent discount rate, which is relatively low. Raise that discount rate to 12 per cent, to reflect a higher cost of capital, and Peters & Co. found the break-even price of oil for Alberta's biggest oil sands plays rose to $80 a barrel.