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Oil Sands Economics
Oil Sands 101 PresentationOil Sands 101 Presentation
Calgary Calgary Ass’nAss’n of Lifelong Learnersof Lifelong Learners
and and
Petroleum History SocietyPetroleum History Society
Paul PrechtPaul PrechtEnergy Economist and ConsultantEnergy Economist and Consultant
5 February 20135 February 2013
Peter Lougheed on Oil Sands Peter Lougheed on Oil Sands Development : Development :
“It’s out of control, and we’re all “It’s out of control, and we’re all going to pay a price for it”going to pay a price for it”
Paul Precht Energy Economics Ltd.
going to pay a price for it”going to pay a price for it”
Speaking at University of Alberta, March 7, 2007Speaking at University of Alberta, March 7, 2007
Slide 2 5 February 2013
Outline of Presentation
��Oil sands economic indicatorsOil sands economic indicators
�� Production Production
�� InvestmentInvestment
�� PricesPrices
Paul Precht Energy Economics Ltd. 5 February 2013
PricesPrices
�� CostsCosts
�� RoyaltiesRoyalties
��Oil sands outlookOil sands outlook
��Economic RentEconomic Rent
�� Risk of rent dissipationRisk of rent dissipation
Slide 3
Alberta Liquid Petroleum Production 1967-2011 (millions of bbl/day)
1.0
1.5
2.0
2.5
Paul Precht Energy Economics Ltd.Slide 4 5 February 2013
Source: ERCB
0.0
0.5
1.0
1967 1972 1977 1982 1987 1992 1997 2002 2007
Bitumen Upgraded Crude Oil C5+
Oil Sands Production History1967-2011 (millions of bbl/day)
0.6
0.8
1.0
1.2
1.4
1.6
Paul Precht Energy Economics Ltd.5 February 2011
Slide 5
Source: CAPP
0.0
0.2
0.4
0.6
1967 1972 1977 1982 1987 1992 1997 2002 2007
Bitumen from In Situ Bitumen from Mining
SCO from In Situ SCO from Mining
Oil Industry Upstream Investment ($ billions)
20%
30%
40%
50%
60%
$10
$15
$20
$25
$30
Paul Precht Energy Economics Ltd.Slide 6 5 February 2013
Source: CAPP
0%
10%
20%
$0
$5
$10
1997 1999 2001 2003 2005 2007 2009 2011
Conv Oil & Gas Oil Sands Oil Sands as % of Total
Oil Sands Investment ($ billions)
$10
$15
$20
$25
Paul Precht Energy Economics Ltd.Slide 7 5 February 2013
Source: CAPP
$0
$5
$10
1997 1999 2001 2003 2005 2007 2009 2011In-situ Mining Upgraders
Crude Oil & Bitumen Prices ($/bbl)
$60
$80
$100
$120
$140
Paul Precht Energy Economics Ltd.Slide 8 5 February 2013
Source: Calculations based on US DOE, Company Postings, Bank of Canada
$0
$20
$40
2005 2006 2007 2008 2009 2010 2011 2012
Brent $Cdn WTI $Cdn WCS CL Bitumen
Crude Oil Price Differentials ($/bbl)
$20
$30
$40
$50
$60
$70
Paul Precht Energy Economics Ltd.Slide 9 5 February 2013
Source: Calculated
$10
$0
$10
2005 2006 2007 2008 2009 2010 2011 2012
Brent-WTI Mthly Brent-WTI Ann Avg
Brent-WCS Mthly Brent-WCS Ann Avg
Brent-Bitumen Mthly Brent-Bitumen Ann Avg
Crude Oil Price Differentials (%)
60%
75%
90%
105%
Paul Precht Energy Economics Ltd.Slide 10 5 February 2013
Source: Calculated
30%
45%
2010 2011 2012
WTI as % Brent WTI as % Brent (Annual Avg)
WCS as % WTI WCS as % WTI (Annual Avg)
Bitumen as % WTI Bitumen as % WTI (Annual Avg)
Oil Sands Cash Operating Costs ($/bbl)
$20
$25
$30
$35
$40
$45
Paul Precht Energy Economics Ltd.Slide 11 5 February 2013
Source: Company Annual Reports
$0
$5
$10
$15
$20
1999 2001 2003 2005 2007 2009 2011COS Ltd Suncor
Cost Indices: 2000=100
100
150
200
250
300
Paul Precht Energy Economics Ltd.Slide 12 5 February 2013
Source: Statistics Canada, IHS CERA, Company Annual Reports
0
50
100
CPI - CA CPI - AB UCCI UOCI COSL/Suncor
Oil Sands Capital Cost Inflation
Paul Precht Energy Economics Ltd.Slide 13 5 February 2013
Source: RBC Capital
Supply Costs ($/bbl)
$30.50
$44.75
$89.62
$61.05
$40
$60
$80
$100
Paul Precht Energy Economics Ltd.Slide 14 5 February 2013
Source: CERI
$15.64
$30.50
$15.48
$0
$20
$40
SAGD Mining & Upgrading Stand-Alone Mining
2004 2012
$8
$10
$12
$14
$16
$18 FHMT
Rentals &
Fees
Bonuses &
Lands Sales
Coal
SCO &
Alberta Non-Renewable Resource Revenues - $mmActual Forecast
Paul Precht Energy Economics Ltd.
$2
$0
$2
$4
$6 SCO &
Bitumen
Crude Oil
Nat Gas &
By-Products
ARTC/Drilling
Stimulus
Slide 15 5 February 2013
Source: Alberta Treasury Board & Finance
40%
60%
80%
100%FHMT
Rentals &
Fees
Bonuses &
Lands Sales
Coal
Alberta Non-Renewable Resource Revenues - %Actual Forecast
Paul Precht Energy Economics Ltd.
-20%
0%
20%
40%SCO &
Bitumen
Crude Oil
Nat Gas & By-
Products
ARTC/Drilling
Stimulus
Slide 16 5 February 2013
Source: Alberta Treasury Board & Finance
Alberta Non-Renewable Resources Revenues Shares
30%
40%
50%
60%
70%
80%Actual Forecast
Paul Precht Energy Economics Ltd.Slide 17 5 February 2013
Source: Calculations based on Alberta Treasury Board & Finance
0%
10%
20%
1999-00 2001-02 2003-04 2005-06 2007-08 2009-10 2011-12 2013-14
NRRR as % of Total Rev
Oil Sands Roy as % of NRRR
Gas Roy as % of NRRR
4.0
6.0
8.0
10.0
12.0
800
1,200
1,600
2,000
2,400
Ro
yati
es $
bil
lio
ns/y
r
Pro
du
cti
on
106m
3/y
rAlberta Crude Oil & Oil Sands
Royalties and Production
Actual Forecast
Paul Precht Energy Economics Ltd.
0.0
2.0
4.0
0
400
800
Ro
yati
es $
bil
lio
ns/y
r
Pro
du
cti
on
106m
3/y
r
Crude Oil Production Oil Sands Production
Crude Oil Royalties Oil Sands Royalties
Slide 18 5 February 2013
Source: ERCB, Alberta Treasury Board & Finance
$2.00
$3.00
$4.00
$5.00
Alberta Crude Oil & Oil Sands Royalties ($/bbl)
Actual Forecast
Paul Precht Energy Economics Ltd.
$0.00
$1.00
$2.00
Crude Oil SCO & Bitumen
Slide 19 5 February 2013
Source: Calculations based on ERCB, Alberta Treasury Board & Finance
Oil Sands Production Forecasts (b/d)
3,000,000
4,000,000
5,000,000
6,000,000
Paul Precht Energy Economics Ltd.Slide 20 5 February 2013
Source: CAPP, NEB, ERCB, CERI
0
1,000,000
2,000,000
2013 2018 2023 2028 2033
CAPP NEB ERCB CERI
Oil Sands Employment
13329
3977
4933
20,000
25,000
30,000
35,000
40,000
Paul Precht Energy Economics Ltd.Slide 21 5 February 2013
Source: Petroleum Human Resources Council
8217
16801
8110
3977
0
5,000
10,000
15,000
2011 2021In situ Mining Upgrading
Peter Lougheed on Oil Sands Peter Lougheed on Oil Sands Development : Development :
“It’s out of control, and we’re all “It’s out of control, and we’re all going to pay a price for it”going to pay a price for it”
Paul Precht Energy Economics Ltd.
going to pay a price for it”going to pay a price for it”
Speaking at University of Alberta, March 7, 2007Speaking at University of Alberta, March 7, 2007
Slide 22 5 February 2013
Economic Rent
Economic Rent
Supply Curve
- sum of all plays,
all with different
costs
Market
Price
Price
Per unit
Difference between
Market Price and
Projects with
low economic
rent
Non-viable Projects
- supply cost
exceeds market
price
Paul Precht Energy Economics Ltd. 5 February 2013
Exploration Cost
Development Cost
Operating Costs
Return on Investment Supply Cost
- life cycle
economics of
individual
play
Economic Rent
Quantity of Supply
Projects with
high economic
rent
Market Price and
Supply Cost
Slide 23
Oil Sands Equities vs Price per BblOil Sands Equities vs Price per Bbl
$20
$40
$60
$80
$100
$80
$160
$240
$320
$400
Paul Precht Energy Economics Ltd.Slide 24 5 February 2013
Source: iShares.com, Company Postings
$0
$20
$0
$80
Oil Sands ETF WCS
Linear (Oil Sands ETF) Linear (WCS)
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