New Technology Could Help Oil Sands Producers (SU)

December 18, 2008 by Douglas A. McIntyre

SRI Consulting published a new report on producing crude oil from western Canada’s oil sands deposits. The report concludes that "with rational engineering and prudent business decision making, grass roots tar sands projects should be economically viable at benchmark crude oil prices below US$60 a barrel."  This brings about good news and bad news for the Canadian Oil Sands sector.

This is a pretty big deal, especially with benchmark crude prices inthe low $40/barrel range. For example, in the 2008 third quarter,Suncor Energy Inc. (NYSE:SU) reported that its projected operatingcosts per barrel had increased to $36.50/barrel.

Mining Canada’s oil sands gets more costly every quarter. Suncor’s cashflows are good, but its expenditures are high and, as financing getstighter and tighter, it needs to drive down its operating costs. Thisis true whether oil is selling at $40/b or $70/b.

Suncor’s share price is down 72% from 52-week highs, trading at under $21/share in early trading.

Paul Ausick
December 18, 2008