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Oil sands projects slow down in response to weak oil prices

November 03, 2012

Suncor has a trio of big oil sands projects underway. The company is reviewing the viability of the projects and cutting costs.

The price of oil (WTI) at $84.86 per barrel has been sliding. The medium-term trend for crude oil prices is down. Oil needs to trade at around $90 for Suncor’s Fort Hills project to be economic. The break-even price for Joslyn is around $90/barrel.

Suncor is the largest operator in the oilsands, with huge mining operations north of Fort McMurray, a 12 per cent interest in the Syncrude Canada Ltd. mine, a 41 per cent stake in the yet to be developed Fort Hills mine and steam-driven operations at Firebag and Mackay River. Suncor said it now expects to spend $6.65 billion this year, down from the $7.5 billion it predicted earlier.

Suncor (ticker SU on TSX) trades at $34.65 per share and the company has a market cap of $53 B.

Suncor and Total S.A. formed a $1.75-billion joint venture in late 2010 encompassing the Fort Hills and Joslyn mines and the Voyageur upgrader.


The declining oil price, as with commodity prices generally, has been somewhat surprising lately. The US Federal Reserve has adopted an extremely aggressive monetary easing policy stance which one would expect would inflate oil prices. Countering the fed action are industry actions - drilling and finding more oil (e.g.Bakken) using new technologies (fracking and horizontal drilling).

If the oil price falls below $80, expect further curtailment of activity in the oil sands.