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tensive period from the construction of its Horizon project.
Following the completion of Phase 3 at Horizon, CNRL is poised
to generate over US$3 billion in free cash flow over the next
three years if oil remains at US$55/bbl ( W TI). Asian firms were
once the resource acquirers of the sector but have reined in
ambitious investment plans after making expensive acquisitions
when oil prices were high.
THE INDUSTRY’S FUTURE
Domestic operators are committed to developing Canada’s vast
resource potential and reinvesting cashflow from the oil sands
back into Canadian projects. This is in stark contrast to the
priorities of internationally focused producers that would likely
use the predictable and steady cashflow of the oil sands to fund
projects abroad. That’s one positive that perhaps offsets the
loss of a more diverse group of international companies chasing
the necessary technological improvements to move the oil
The future of oil sands development will be heavily influenced
by technological advances to reduce costs and emissions (these
are linked). Greenfield project economics are likely to be chal-
lenged unless substantial progress can be made on extraction
methodology and operating efficiencies. Wood Mackenzie es-
timates a 20% reduction in capital intensity for a 35 kb/d steam
assisted gravity drainage (SAGD) development would increase
the marginal remaining post tax NPV10 to over C$200 million
(see Figure 3). That same 20% reduction results in a breakeven
price below US$61/bbl W TI (Figure 4) making new greenfield
expansions economically feasible.
Adding solvents to steam or removing steam entirely are two
technologies being advanced. However, in the near-term, value
will likely be realized through project optimization and operating
efficiencies for incremental growth. Canadian companies are
now doubly reliant on it.
ABOUT THE AUTHOR
Michael Hebert is a research analyst with Wood
Mackenzie in Calgary, Canada. He joined the firm
in 2014 to provide financial asset valuation and
objective commercial analysis on company and
play activity throughout Canada. Hebert holds a
Master of Science degree in Energy, Trade, & Finance from Cass Business School, University of London, and a
Bachelors of Management in Finance from the University of
British Columbia. He is working towards obtaining his Chartered
Financial Analyst (CFA) designation. Hebert also serves as a
member of the board of directors for Young Professionals in
Energy, Calgary chapter.