Canadian Natural Resources Ltd. has rolled out two key numbers: 85 and 75.
Réal Cusson, the company’s senior vice president of marketing, on Wednesday told investors where the price of oil must trade in order for energy companies to make a go of it in the oil sands and shale gas formations.
In the oil sands, Mr. Cusson said companies will flirt with trouble if the price of crude dips to $85 (U.S.) per barrel as expansion spreads in northern Alberta.
“The economic reality is something we’ll have to adjust to. If oil goes down to $85, and there’s no certainty in the financial part of the business, it is again reasonable to expect that some of these projects will not go, or some of these projects will be at the very least differed,” he said.
It is more expensive to launch or expand a mining project compared to an in-situ operation because the latter can be done in smaller chunks.
In shale oil plays, however, companies have a bit more breathing room. In order to break even traders must pay at least $70 to $75 per barrel for crude extracted from the geologically-challenging zones.
“It varies considerably even within one area,” he said. “At this present time, obviously, most of these projects are economical and attractive.”
CNRL’s math considered shale plays across the continent, and factored in a 10 per cent internal rate of return and natural gas at $3.50 per million British thermal units.
The Cushing spot price for West Texas Intermediate crude is trading at around $92.77 per barrel Thursday afternoon. While WTI is the North American benchmark, companies producing oil in Canada are being slapped with a discount because of a supply glut. Suncor Energy Inc., for example, expects to sell its oil for $10 to $15 per barrel less than its WTI forecast of $95 per barrel in 2012.