Canadian Oil Sands: Getting The Facts Straight
Comment of the Day

January 22 2014

Commentary by Eoin Treacy

Canadian Oil Sands: Getting The Facts Straight

This article by Doc Mike at Seeking Alpha may be of interest to subscribers. Here is a section: 

Fincom claims that COSWF is a high-cost producer. Yet, the company reports its cost per barrel of $41.48 CAD. How does this compare with, say, oil shale producers in the Bakken?

From a recent Reuters article:

"We've seen tremendous variability in cost and well performance between operators as each tests different methods of well completion," said Jonathan Garrett, analyst at Wood Mackenzie. Among the factors that can affect costs: lateral length, stage count, proppant volume and type, fluid volume and type, sleeves versus plug-and-perf.

Wood Mackenzie has an overall Bakken break-even price of $62 a barrel at current well costs, Garrett said. But for high-quality parts of the formation such as the Parshall and Sanish fields, that number goes down to the $38-$40 range.


While producers can break even at just below $40 a barrel in most places, the Bakken needs prices in the $80-$85 range to attract capital from other shale areas.

Eoin Treacy's view

The evolution of the USA's domestic oil and gas production represents a significant challenge for Canadian energy producers not least in securing markets and transportation networks for their output. However the fact that any commodity tends to trade at the marginal cost of new production suggests that the Canadian oil sands are likely to remain economically viable resources for the foreseeable future. 

Canadian Oil Sands has an Estimated P/E of 11.8 and yields 6.82%. The share has been confined to a tight base since 2011; trading above $18. It is currently rallying from the most recent test of the lower side of the medium-term range and a sustained move above C$21.25 would confirm a return to medium-term demand dominance. 


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