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Surging oil prices and tumbling construction costs have pulled Alberta`s stalled oil sands across a major threshold to future profitability, creating new expectations that a comeback may not be as far away as once feared.
Declines in the cost of steel and labour have combined with crude prices that yesterday neared $70 to bring the oil sands "back in black," said UBS Securities analyst Andrew Potter.
In a research report released yesterday, Mr. Potter calculated that new projects now need only $60 (U.S.) crude to turn a 10-per-cent profit. The very best projects, such as EnCana Corp.`s Foster Creek-Christina Lake, need only $40.
Those new estimates mark a dramatic turnaround from last fall, when analysts calculated that projects in Fort McMurray required $100 oil, as huge demands for labour and commodities pushed costs to extreme highs.
When oil tumbled far beneath that level, the industry delayed or outright cancelled a vast amount of projects.
By one estimate, more than $230-billion in planned spending was yanked.
Now, Mr. Potter said, the conditions are ripe for some of those capital plans to be revived.
"We thought it would take a couple of years of costs to come down sufficiently, but it`s happened in eight months or less," he said.
"At the end of the day, we expect most projects will ultimately be resanctioned. But it`s not all happening at once."
Read the full article here.
Declines in the cost of steel and labour have combined with crude prices that yesterday neared $70 to bring the oil sands "back in black," said UBS Securities analyst Andrew Potter.
In a research report released yesterday, Mr. Potter calculated that new projects now need only $60 (U.S.) crude to turn a 10-per-cent profit. The very best projects, such as EnCana Corp.`s Foster Creek-Christina Lake, need only $40.
Those new estimates mark a dramatic turnaround from last fall, when analysts calculated that projects in Fort McMurray required $100 oil, as huge demands for labour and commodities pushed costs to extreme highs.
When oil tumbled far beneath that level, the industry delayed or outright cancelled a vast amount of projects.
By one estimate, more than $230-billion in planned spending was yanked.
Now, Mr. Potter said, the conditions are ripe for some of those capital plans to be revived.
"We thought it would take a couple of years of costs to come down sufficiently, but it`s happened in eight months or less," he said.
"At the end of the day, we expect most projects will ultimately be resanctioned. But it`s not all happening at once."
Read the full article here.