By JOE CARROLL
ConocoPhillips and Royal Dutch Shell are among global oil
companies needing crude prices as high as $150/bbl to turn a
profit from Canadas oil sands, the costliest petroleum
projects in the world, according to a study.
The next most-expensive crude projects are in the deep waters
off the coasts of Africa and Brazil, with each venture
needing prices between $115 and $127/bbl, said Carbon
Tracker Initiative, a
London-based think tank and environment
al advocacy group, in a
As the US shale drilling boom floods the worlds biggest
crude market with supply, explorers are at greater risk of a
price collapse that would turn some investments into money
losers. Energy explorers are willing to invest in high-cost
oil-sands developments because once they are up and running,
they produce crude for decades longer than other ventures
such as deepwater wells, said David McColl, an analyst at
Morningstar in Chicago.
Where else can you get 10 to 30 years of predictable
cash flow? said McColl, who estimated new oil sands project
s require $60 to $100 crude
to make sense. The returns may not be stellar compared
to some other projects but they are steady.
After four straight years of gains, Brent crude, the
benchmark price for most of the worlds oil, declined
0.3% last year to an annual average of $108.70. Brent for
September delivery slumped as low as $102.10, a 13-month low,
on the London-based ICE Futures Europe
In order to sustain shareholder returns, companies
should focus on low-cost projects, deferring or cancelling
projects with high break-even costs, the reports
authors wrote. Capital should be redeployed to share
buybacks or increased dividends.
Tracker said it derived its
projects list and cost estimates from a database compiled by
Rystad Energy, an Oslo-based oil-industry consulting firm.
ConocoPhillips, an investor in two of the three most-
s on Carbon Trackers
list, subscribes to the same Rystad database, said Daren
Beaudo, a spokesman for the Houston-based oil producer.
Carbon Trackers cost estimates are twice as high as
they should be, based on ConocoPhillipss analysis, he
We dont believe the estimates CTI are quoting are
accurate or realistic, Beaudo said in an e-mailed
statement. We believe there is great value to having
oil sands in our portfolio.
In May, Carbon Tracker released a report that said the oil
industry was at risk of wasting $1.1 trillion of
investors cash on expensive developments in the Arctic,
oil sands and deep oceans. That figure represents the amount
explorers may spend on oilfields that need crude prices of
$95 a barrel or more, the group said three months ago.
Oil companies face growing pressure from shareholders to rein
in costs after two decades of bigger spending have failed to
boost production or profitability, said Steven Rees, who
helps oversee $992 billion as global head of equity strategy
at JPMorgan Chase Bank.
The projects most at-risk from lower prices are
ConocoPhillipss Foster Creek development and
Shells Carmon Creek, oil-sands developments in Alberta
that respectively need $159 and $157 a barrel oil to be
A joint ConocoPhillips and Total oil-sands project called
Surmont requires $156/bbl, while ExxonMobils Aspen and
Kearl developments in the same part of Canada need $147 and
$134 crude, respectively, to make economic sense, the study
ConocoPhillips plans to spend $800 million/year on oil-sands
projects over the next three years that will generate more
than $1 billion in annual cash flow starting in 2017, Beaudo
said. Those cash flows will increase over time and last for
decades, providing funds for other types of oil developments,
s biggest company by
market value, relies on a per-barrel price range of $70 to
$110 for the purposes of longer-term project
Bradley, a spokeswoman for The Hague-based corporation, said
in a telephone interview. She didnt directly address
the studys findings with regard to the oil sands.
An Exxon spokesman said he couldnt immediately comment
on the studys findings. A request for comment from
Total was not responded to immediately.
Other high-cost regions highlighted in the report included
the Partitioned Nuetral Zone shared by Saudi Arabia and
Kuwait, the Arctic and the Gulf of Mexico.