A multibillion-dollar spending spree in Alberta's oil sands is set to cool next year as construction on major expansions ends and falling crude prices tamp expectations for future growth.
Budgets for next year are still being finalized, and it's not yet clear whether companies will dial back spending, but oil sands capital expenditures could tumble by as much as $8-billion as several big-ticket expansion projects move from construction to operations, according to Wood Mackenzie Group.
Oil sands spending in 2015 could fall to $20-billion from $28-billion this year, according to a project-by-project analysis conducted by the Edinburgh-based consultancy.
"This is largely a function of large projects coming to fruition," analyst Mark Oberstoetter said. "Should lower oil prices persist, the real impact will be on longer-term spending for the next wave of oil sands projects that have yet to be sanctioned."
Global crude prices have dropped more than 25 per cent from a June high of $115 (U.S.) per barrel. On Wednesday, North Sea Brent closed at $82.95. U.S. crude rose slightly to $78.68 a barrel in New York, after touching about $76 earlier in the day. The American benchmark is off 20 per cent this year.
Some analysts have said any reductions in spending next year won't hit oil sands projects already in development. Instead, cuts are likely to impact work associated with future production growth, such as delineation drilling on new lands, they say.
Canada's largest oil company, Suncor Energy Inc., has said it expects spending to increase next year as construction ramps up on its $13.5-billion (Canadian) Fort Hills joint venture with Teck Resources Ltd. and Total SA. Cenovus Energy Inc. plans to keep spending in line with this year's budget of roughly $3-billion, although the company said last week it would stay flexible in light of weaker commodity prices.
"I think most people in town are obviously very concerned about the decline in oil prices," Enbridge Inc. chief executive Al Monaco said Wednesday.
"The market's going to be pretty difficult to balance in the short-term, just given the increase in supply we've seen relative to the demand outlook generally on a global basis."
Still, he said the oil slump has been exacerbated by global refinery maintenance to the tune of five to six million barrels a day, and North American production, on a full-cycle basis, is still competitive with oil prices in the range of $80 (U.S.) to $85. "Nobody's jumping off a cliff yet," he told analysts.
Wood Mackenzie said oil sands spending would sink 28.5 per cent next year as more projects shift to operations from construction.
Next year alone will see Imperial Oil Ltd. put the finishing touches on a multibillion-dollar expansion to its Kearl mine. Husky Energy Inc. expects to start production from the first phase of its Sunrise project with BP PLC. France's Total SA, which this year scrapped its $11-billion Joslyn mine, is expanding its steam-driven Surmont asset, a joint venture with ConocoPhillips Co. Pengrowth Energy Corp. and Cenovus are also finishing growth projects.
Reduced spending in the oil sands would still dwarf other corners of the energy industry.
By contrast, Wood Mackenzie expects drillers will plow $3-billion into the Duvernay, a prospect in west-central Alberta that has seen limited activity to date despite its billing as a rival to the biggest U.S. shale zones.
"Lower oil prices would impact capital spending in marginal plays but there remain many outlets for investment in today's price environment," Mr. Oberstoetter said. Oil sands projects with large sunk costs are still attractive, he said, and Alberta natural gas prices have held up at around $3.50 per 1,000 cubic feet.