What To Expect From The Oil Sands In 2010

By Eric Fox | January 11, 2010 AAA

The oil sands in Canada will see higher capital spending in 2010, as exploration and production companies start to restore spending on projects that were cut during the panic of 2009. Production from existing projects will also continue to increase during the year.

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Production Expected To Ramp Up
These cuts were caused by lower commodity prices and tighter credit conditions in the U.S. and world markets. Although production estimates from the oil sands were cut back due to these project delays, production will ramp up rather quickly over the next decade.
The Canadian Association of Petroleum Producers estimates that production from the oil sands will be approximately 1.8 million barrels per day by 2012, and 3.25 million barrels per day by 2020. This updated estimate incorporates cutbacks announced during the sharp drop in commodity prices and the recession.

Kearl Oil Sands Project
Imperial Oil (NYSE: IMO) recently announced that it would move forward with Phase I of the Kearl oil sands project. The first phase will have a capacity of 120,000 barrels per day, coming on line in 2012. Imperial Oil is 69.6% owned by Exxon Mobil (NYSE: XOM).

Firebag Project
Suncor Energy (NYSE: SU) also announced its 2010 capital expenditure plan, which contained $950 million in spending for phases 3 and 4 of its Firebag development. Each of these phases will have capacity of 68,000 barrels per day, and phase 3 will be on line in 2012. Other companies may also announce the restart or initiation of projects in 2010 as economic growth restarts.

One smaller cap company with leverage to activity in the oil sands is Oil States International (NYSE: OIS). The company's well site services segment provides lodging and other services to workers on site at projects.

This segment was 56% of its EBITDA in the nine months ending September 30, 2009. The biggest part of this segment is accommodations at 38% of the entire EBITDA for the company. (To learn more about EBITDA, read the article A Clear Look At EBITDA.)

Higher Demand For Lodging
Oil States International owns four lodges in the oil sands region, with capacity of approximately 5,600 beds. If oil sands activity increases as anticipated, the company should see higher demand for these services.

This leverage to oil sands activity for Oil States International is highlighted by a recent contract announcement. The company received a contract to provide accommodation for the Kearl oil sands project, and it will expand capacity at its Wapasu Creek Lodge from 2,900 to 5,000 rooms.

Delayed Projects Restarting And Carrying On
Capital will continue to flow to various oil sands projects in Canada, as various companies carry on and restart projects that were delayed by the recession and credit crisis of the last two years.

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