What a Site!

Finding an optimist in the oil sands sector is unimaginably difficult. The global economy has been in tatters for months. The price of a barrel of crude goes ever lower. Planned new projects and expansions have been reeled in. Environmentalists are condemning the sector more loudly than ever.

So when least expected, up pops David McColl, chief economist at the Canadian Energy Research Institute (CERI) in Calgary. He may be the one person in the sector that can spot opportunity amid all the gloom.

“The recent credit crisis sis and collapse in energy prices can be seen as a chance for the industry to step back and focus on the next moves in the development of the oil sands,” he wrote in his oil sands briefing to CERI in February 2009.

“Herein lay opportunities: to secure high quality labour being let go by organizations, to secure components and products at costs that have not been seen in almost a decade, and to prepare for the eventual return of higher oil prices and economic activity while your competitors scramble to catch-up.”

To find out more, CMJ’s Field Editor Marilyn Scales recently spoke with Mc-Coll and here’s what he had to say.

“There was such a mad rush in the oil sands over the last few years and now things have suddenly gone quiet. Everyone was so busy with promotion, promotion, promotion that some people forgot about project fundamentals

“Now is the time to step back and examine the situation, particularly to exercise capital cost control. In recent times of high oil prices and what has been called “exuberant optimism” in financial markets, the price of oil sands projects developed the nasty habit of doubling every year or two.

“The same forces that brought expansion to a standstill have provided reduced equipment and labour demand, making both more affordable.

“A producer with cash that was raised in the expectation of capital spending is in a good position to take advantage of this situation. A company might place long lead time orders for equipment or boost its engineering staff as it seeks ways to control project costs.

“Small, would-be oil sands producers are unable to raise money in the current fiscal climate but larger producers have cash in hand that was raised in expectation of capital spending,” said McColl..

“There is one question that no one has yet addressed, added McColl. That is: Will the economic slowdown offset the collapse of the Canadian dollar against the American?”

According to CERI estimates, there are $200 billion in announced projects and expansions that have been halted.