Skip to main content

Energy and Resources Major oil project investment signals renewed industry confidence

Tepid enthusiasm for expansion is returning despite oil prices that remain under levels analysts say are needed to justify new projects.

Ben Nelms/Bloomberg

Thailand's state-run oil company is reviving blueprints for a major oil sands project in the latest sign the industry is shedding caution after more than two years of contraction.

Global oil prices have fallen sharply in recent weeks as doubts grow over a proposed deal led by the Organization of Petroleum Exporting Countries to tackle a global glut. But some companies are resuscitating growth projects that in many cases won't produce any crude for years.

Thailand's PTT Exploration and Production Public Co. Ltd. has awarded a contract for early-stage engineering work on its proposed Mariana Thornbury oil sands project in northern Alberta to AMEC Foster Wheeler PLC, said an executive with the engineering giant.

Story continues below advertisement

The Thai company shelved the steam-driven project's first phase as oil prices fell. It is due to produce 22,000 barrels of oil a day, although a start date is not known. A spokesperson for the company did not respond to a request for comment Friday.

The decision to revive the initiative shows that enthusiasm for expansion, albeit tepid, is returning despite oil prices that remain well under levels analysts say are needed to justify brand new projects. Indeed, companies are seen as more likely to revisit mothballed plans where they have already spent a considerable amount of money.

Last week, Canadian Natural Resources Ltd. said it would restart activity at its Kirby North project, buoyed by cost savings and expected cash flow from its expanding Horizon bitumen mine.

The Calgary-based company had already sunk $700-million into the plan when it was put on ice last year. It pegs remaining costs at $650-million, $100-million less than original estimates, with initial production targeted for 2020.

Raymond James analyst Chris Cox said that he does expect to see more expansions, but he doesn't see the CNRL project on its own as an indication that industry spending is poised to snap back to precrash levels.

"Kirby North was already half complete when it was previously halted and almost all of the major long-lead-time items had already been purchased and in most cases, delivered. The incremental costs are low enough that the company can still proceed with development even at this juncture."

Major producers won't unveil budgets for next year for several weeks, with many waiting on the outcome of OPEC's Nov. 30 meeting in Vienna.

Story continues below advertisement

However, several companies have signalled they are planning modest or reduced capital programs for 2017 should prices stay below $50 (U.S.) a barrel. West Texas intermediate oil on Friday fell by 59 cents to $44.07 a barrel.

Cenovus Energy Inc. has said it would provide details on future investments when it announces its budget in December, including whether it will restart expansion at its flagship Christina Lake project.

Analysts say it benefits from being a so-called "brownfield development," meaning costs are substantially below the price tag of building new operations from scratch.

PTTEP had planned to start front-end engineering work for Mariana Thornbury in 2014. It acquired full control of the undeveloped lease from Norway's Statoil ASA when the two companies ended a multibillion-dollar joint venture.

A development proposal for the initial phase was submitted to provincial regulators in May, 2015. Last month, the Bangkok-based company said it was "reassessing the investment strategy going forward to reduce costs and mitigate development risks in response to the low-oil-price environment."

Even with cost savings, however, such projects require oil prices above $60 a barrel to break even, according to Edinburgh-based consultancy Wood Mackenzie.

Report an error
Tickers mentioned in this story
Unchecking box will stop auto data updates
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

Cannabis pro newsletter