September 29, 2015

Shell drops Alaska oil project but Canada oilsands, North Dakota and Texas continue at slower pace

On Monday, Royal Dutch Shell ended its nine-year effort to explore for oil in the Alaskan Arctic — a $7 billion investment — in another sign that the entire industry is trimming its ambitions in the wake of collapsing oil prices.

An oil forecast by Kirk Spano (Bluemound Asset Management) is that oil prices will be range bound for a long time. The Supply and demand imbalance will narrow and oil prices could stabilize around $80 per barrel by next year (2016).

Oilsand projects continues

The oil sands have been particularly resilient, with production continuing to grow, even as producers cancel projects left and right. And this is only the beginning. Investment dealer Peters and Co., which specializes in the energy sector, predicts that oil sands production will grow from 2.1 million barrels per day today to 2.75 million b/d by 2020.

Peters also identified the projects that will propel this growth. We take a closer look below.

The first wave

Peters identified three oil sands projects that will make up the “first wave” of new production: Kearl phase 2, Sunrise phase 1, and Surmont phase 1.

The Kearl project is jointly owned by Exxon Mobil Corp. and Imperial Oil Limited. Its second phase began producing at the beginning of this year, and will produce 110,000 b/d once it’s fully ramped up.

Sunrise is owned by Husky Energy, and its first phase is expected to produce 60,000 b/d by the end of next year. The company also has regulatory approvals in place for phase 2, which would add another 200,000 b/d if the project gets the go-ahead.

Surmont is owned by two foreign companies, ConocoPhillips and Total SA. First steam on phase 2 was achieved in May, and the project is quickly being ramped up. By 2017, ConocoPhillips expects Surmont phase 2 to produce more than 100,000 b/d.

Texas holds em steady

Though drilling permits are on the decline, Texas crude oil production held more or less steady month-to-month, state data for July show.

The Railroad Commission of Texas, the state's energy regulator, reports 2.45 million barrels of oil produced per day in July, the last full month for which the state has data. Year-on-year, total crude oil production is up 9.3 percent. Month-to-month, production is up about eight tenths of a percent.

The commission said Texas oil production came from 176,810 oil wells in the state

North Dakota

The total number of rigs in North Dakota is down about 62 percent from last year. Crude oil production in North Dakota was 1.2 million barrels per day in July, the last full month for which data are available. That's down about 1.6 percent from the all-time high reported in December, when crude oil prices were about 20 percent higher than the $44.85 per barrel reported Monday for West Texas Intermediate.

The break-even oil price in North Dakota -- a price that includes exploration and production costs -- ranges from as low as $24 per barrel to as high as $85 per barrel.

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