Back in February, the folks at Macquarie gave us a rundown on all things oil sands, including the research shop's estimates for breakeven costs, what factors are most critical to a low-cost operation, and who the sector's standouts are.
This week, another top shop is out with an updated spin on the oil sands. This is pretty timely, following the year's biggest IPO, not to mention China Petroleum & Chemical Corp's proposed purchase of ConocoPhillips' (NYSE: COP ) 9% Syncrude stake.
Calgary-based Peters & Co. estimates that oil sands projects employing steam-assisted gravity drainage (SAGD) technology to produce bitumen need $55 per barrel to break even. That's up from a previous estimate of $50, reflecting higher average costs than the company had previously modeled. Macquarie pegged breakeven (defined as a 10% after-tax rate of return) at a slightly higher $61 per barrel in its February report.
Whether Peters or Macquarie has the better break-even estimate, SAGD economics look very attractive at today's oil prices. Of course, that's only on average. Some projects, like Nexen's (NYSE: NXY ) Long Lake play, are not faring particularly well. Investors need to focus on the best-in-class operators here.
As discussed in the Macquarie report, Devon Energy (NYSE: DVN ) , Cenovus Energy (NYSE: CVE ) , and Suncor Energy (NYSE: SU ) are some of the lowest-cost oil sands players. The Peters crew concurs with those picks, and adds Imperial Oil (AMEX: IMO ) as another efficient operator for investors to consider.
Imperial has been active in the space for decades, with pilot production at Cold Lake tracing back to the mid-1960s. Imperial developed the cyclic steam stimulation (CSS) process, a SAGD alternative under the right conditions, in-house, and has used it to pump more than 1 billion barrels of bitumen out of the ground.
This is another strong name in the space, though you should be aware that a significant portion of Imperial's future growth will come from the Kearl project, an open pit mining joint venture with ExxonMobil (NYSE: XOM ) . If, like me, you're more keen on SAGD, you might prefer to keep your focus on Cenovus.