Canadian Oil Sands Continues To Grow In Face Of Falling Crude Prices
• Canadian oil sands production continues to grow in the face of falling crude prices.
• Oil sands projects take much longer to complete than U.S. drilling projects and are not as sensitive to short-term market changes.
• RBC capital predicts WTI crude prices of $57/bbl in 2016 and $65/bbl in 2017.
In a new report, RBC Capital Markets analyst Greg Pardy explains why Canadian oil sands production will continue to play a role in the global crude oil supply glut for years to come. New oil sand projects in Canada are still being completed, and production will continue to rise in coming years.
Timing Is Everything
According to Pardy, Canadian oil sands in-situ projects take 4-5 years from design to production, with mining projects spanning 7-8 years. For that reason, falling oil prices are not having as much of an impact on Canadian projects as they are having on U.S. drilling projects, which can be throttled up or down in a matter of months.
“As such, the oil sands will remain a part of the global excess supply picture over the next 2-3 years, although cycle-time dynamics cut both ways—once oil prices recover to levels which support the sanctioning of new projects, growth will take years to surface,” Pardy explains.
RBC is projecting oil sands production of 2.4 million b/d in 2015. This production has grown at a compound annual rate (CAGR) of 10.0 percent over the past five years. Pardy believes production will continue at a CAGR of 7.0 percent from 2015 to 2020.
In the report, RBC maintains its WTI crude oil price forecasts of $51/bbl, $57/bbl and $65/bbl for 2015, 2016 and 2017, respectively. The firm names Royal Dutch Shell plc (ADR) (NYSE: RDS.A), Canadian Natural Resources Ltd (USA) (NYSE: CNQ) and Pioneer Natural Resources (NYSE: PXD) as top Outperform-rated stocks.
Disclosure: the author holds no position in the stocks mentioned.
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