Canada Oil Sands - An Update

March 23, 2015

Authors: Olga Kerimova, Analyst, and Theodora Batoudaki, Analyst, Rystad Energy

Publisher: PESGB Newsletter, April Edition 

Canadian oil sands have a relatively high cost of supply compared to other sources of production and are hence more sensitive to lower oil prices. This article assesses the outlook for the Canadian oil sands, illustrated by three key drivers: production, operating costs and spending. 

Figure 1 shows the total production for the Canadian oil sands from 2014-2020. Production levels were around 1.8 million boe/d in 2014 and are expected to grow to over 2.8 million boe/d by 2020. While currently producing fields show a stable production trend, accounting for around 2 million boe/d on average over the next six years, production growth is expected to come primarily from projects under development. These include Imperial Oil’s Kearl and ConocoPhillips’ Surmont expansions as well as the first phase of Suncor’s Fort Hills development and Husky Energy’s Sunrise project. Compared to November 2014 estimates, the production forecast has been revised downward, with 2020 production reduced by 100 thousand boe/d. Lower oil prices are the key driver behind the lower production forecast as the timing and commerciality of projects comes into question.

Figure 2 shows the cumulative production in 2015 from Canadian oil sands and the corresponding marginal costs (operating unit cost including royalties). The costs are adjusted to account for the price differential between realized prices and the Brent oil price. Selected projects are shown according to their marginal cost and contribution to supply in 2015. The resulting cost curve shows that most of the 2015 oil sands production has a marginal cost between 40 and 60 USD/bbl in Brent-equivalent terms. Around 250 thousand bbl/d (or ~10% of total 2015 supply) costs 60 USD/bbl or more to produce. It is estimated that 30% of the oil sands fields that are producing in 2015 have costs over 55 USD/bbl. Therefore, with the Brent oil price around 60 USD/bbl, these fields are marginal and in some cases operators can be faced with negative netbacks. At Brent oil price of ~50 USD/bbl, average netbacks of fields contributing to the 2015 supply are close to zero.

Figure 3 shows the total spending in Canadian oil sands from 2014-2020. Investments (Capex) are expected to decrease significantly, from ~30 billion USD in 2014 to ~23 billion USD, in 2015. The 24% reduction in 2015 reflects the reduction in activity as a response to lower oil prices, but also the completion of large phases that are coming online in 2015, such as Surmont Oil phase 2 (Total 50%/ConocoPhillips 50%) and Imperial Oil’s Kearl expansion phase and Cold Lake phases 14-16 Nabiye. Investments are estimated to remain stable in 2016 and start increasing gradually from 2017 onwards. The future growth in investments from 2017 to 2020 is mainly driven by the sanctioning of new phases, which is highly dependent on the recovery of oil prices. In January 2015, for example, CNRL announced that its Kirby North phase 1 will be delayed due to the unfavorable oil price environment. Thus, provided that oil prices will increase sufficiently to justify the costs associated with new phases, significant investments are expected from 2017-2018 in MEG Energy’s Christina Lake phase 3A, Imperial Oil’s Kearl phase 3, Cenovus/ConocoPhillips’ Christina Lake phase H and Foster Creek phase J, and CNRL’s Kirby North phase 1. Operational expenditure (Opex) is expected to increase from 25 billion USD in 2014, to over 38 billion USD in 2020.


Oil sands production growth is driven by new phases that are coming online from 2015 and onwards. Operators have confirmed that the projects with expected first oil production in 2015 are on track to start producing this year. However, there is uncertainty for unsanctioned, under development expansion phases that have relatively high marginal cost. If low oil prices persist, investments may be postponed, slowing down activity and production growth post 2017. In the short/medium term oil sands provide a good indication of the expected price floor. With the Brent oil price below 50 USD/bbl for longer periods of time, 1.5-2 million bbl/d of oil supply are at risk.


Article Contacts

Contact: Olga Kerimova, Analyst

Phone: +47 24 00 42 00


Contact: Theodora Batoudaki, Analyst

Phone: +47 24 00 42 00


About Rystad Energy

Rystad Energy is an independent oil and gas consulting services and business intelligence data firm offering global databases, strategy consulting and research products.


Rystad Energy’s headquarters are located in Oslo, Norway, with additional research teams in India. Further presence has been established in the UK (London), USA (New York & Houston), Russia (Moscow), Africa as well as South East Asia.