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Some of Encana Corp.’s supply costs exceed the price of oil, which closed at $48.79 (U.S.) a barrel on Thursday.Todd Korol/The Globe and Mail

The collapse in oil prices has pushed projects planned by some of Canada's most efficient energy companies below their break-even points, putting further pressure on firms to reel in spending plans.

Investors often turn to a company's so-called supply costs to provide insight into the health of energy projects. Supply cost measures what energy firms spend to extract oil and collect a return on investment.

The industry frequently builds in a 9-per-cent rate of return when calculating supply costs. The math excludes some expenses such as corporate costs.

"It is a good metric to know where do you stand in terms of cost of production versus the price of oil," said Dinara Millington, the vice-president of research at the Canadian Energy Research Institute.

Some of Encana Corp.'s supply costs exceed the price of oil, which closed at $48.79 (U.S.) a barrel on Thursday. The company intends to spend between $2.7-billion and $2.9-billion in 2015, with 80 per cent of the cash directed to four plays – British Columbia's Montney; Alberta's Duvernay; and Eagle Ford and Permian, which are both in Texas – as it shifts toward producing more oil and natural gas liquids and less natural gas. Not all of these properties are fully developed.

Encana expects its supply costs to average between $35 per barrel of oil equivalent and $55 per barrel of oil equivalent on these properties. Its supply cost calculation includes a 9-per-cent return on investment.

This means that at today's oil price, not all of Encana's efforts will clear the company's target for return on investment. And for Encana, the stakes are high. It expects these four plays to make up about 60 per cent of its total production and 70 per cent of its upstream operating cash flow in 2015.

Business Monitor International Ltd., a division of Fitch Group, expects oil to trade between $45 a barrel and $60 a barrel, according to a report released on Thursday.

"Prices in the $45 to $50 range are disastrous for oil production in several regions," the report said. It assigned red flags to the Permian basin and North Dakota's Bakken play.

Cenovus Energy Inc.'s supply costs for its expansion phases at its two main oil sands projects are below today's oil prices, but with little wiggle room. The supply costs for its expansion efforts at Christina Lake and Foster Creek range between $40 a barrel and $45 a barrel, according to the company's 2015 budget. This includes expansion efforts that are already under way, as well as proposed stages, at these projects.

Cenovus has already said it is suspending investments on longer-term projects such as Telephone Lake and Narrows Lake.

The oil sands company said it will review its 2015 budget of between $2.5-billion (Canadian) and $2.7-billion in the first quarter. It has earmarked between $400-million and $600-million as "discretionary capital" – money it can trim from its budget.

Cenovus's conventional oil division will be one of the first areas to come under the axe if the company decides to pull back spending, spokesman Brett Harris said. The budget assumes oil will trade at an average ranging from $74 (U.S) a barrel to $81 a barrel in 2015.

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