Quote:
Originally Posted by Rutuu
Those fuel costs figures are quite interesting as well as the economic SOR of 3.0; I say that because I was under the impression that SOR's of 6.0 and below were economic (my rule of thumb could be dated as it's been a few years).
I also appreciated your comments on gas price direction as I agree. Oil linked contracts are going out the window in the LNG game down here.
If Cowboy89 could comment on the what the sensitivites of Oilsands company valuations would be to a $6+/mcf gas price with out an increase in bitumen price I'd be very curious.
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Heh, I don't think I answered the OP question with my rant... I'll get to that.
Rutuu, your comment about economic SOR of 3.0 is an interesting one. The analysis I present has more to do with what is a "typical" SAGD project being applied for today, it doesn't reflect the economic cutoff of anything.
If you look at it on a single well pair basis, you can steam a well pair into recovery factors exceeding 80% ... which might get you as high as 10 - 15 for SOR. So in that sense, I do understand when people say gas is cheap (it's cheap once the steam gens and infrastructure are built, and the well is in the ground, producing). But that doesn't account for opportunity cost of NOT steaming the next high oil saturation pad and getting your production as fast as possible for the steam capacity you have available. That's the tricky balance. The work I've done suggests targetting 65% recovery factor will yield the maximum NPV for a project (while committing new capital) - and of course the "SOR" for that kind of analysis is a big blend of field wide results. At the end of the day "economic" is phrase that is strongly linked to the options available to you that moment in time.
An increase to $6/mcf would basically double fuel cost from today, so you'd have to look into what fuel costs are for a comapny, and how much that would reduce the netback on a per barrel basis.
Let's say fuel costs $5/bbl and the average netback for a year is $20/bbl. A $5/bbl increase is a 25% reduction in profit, and if that company is heavily weighted in oilsands production (i.e. 100%), their profit is going to drop accordingly. Assume their P/E ratio holds steady (maybe it wouldn't), and you could argue for a similar reduction in stock price.
That said many oilsands producers are more like resource developers and are balanced with some gas in their portfolio. It would be a relatively quick job to look into any given company.
To answer the question, is the boom over? Not really. We're just constrained in terms of capital available to fund development. We'll see a lot of brownfield expansion using cash flow from existing operations... that a boom does not make.
I think you'll see a lot of rhetoric about getting our production to any coast now that it seems that WTI and Brent will have an ongoing and significant spread between the two (it wasn't so long ago that selling to the US was just as good for us as selling to coastal outlets). This is a reflection of global demand outstripping US demand, and I believe that will continue to be the case going forward for most commodities.
There will also be a lot of consideration for expanding the petrochemical and processing capacity domestically to take advtanage of the same spread, so long as the demand can be met locally as well. Northwest upgrader is a good example of placing the right bets at the right time, and making things work come hell or high water. Such a fascinating story.
I think in order for the boom to come back, we will need to see gas prices recover. That's where risk capital requirements are small enough that every tom dick and harry entrepreneur can come in and get a piece of the run up. Oilsands don't really work like that... they get bit off in big chunks and the players that will develop them will do so at a pretty measured pace over time. If anything, you would think it could be quite stabilizing to the economy once the production and capital spending curves get large and consistent enough (i.e. outstrip conventional production). We only have so much fabrication capacity in Alberta/North America, and there is a lot of work going on by project owners on how to avoid that risk by fabricating modules offshore.
Maybe we'll see a boom in the absence of gas price increae if we can figure out how to get oilsands production to more markets (via transport or processing), or figure out how to get projects to be profitable on a smaller scale, and figure out how to streamline the approval process.
For instance, it's an absolute joke how quickly major impact tight gas/tight oil projects can get approval compared to oil sands developments. Things have to balance out a bit in both respects, and the government needs to sack up on promoting the good work that gets done by the patch in doing the oilsands work responsibly.
