New oil sands mine projects need crude prices to remain over $100 a barrel to turn a decent profit, analysts at UBS Securities said following Petro-Canada’s announcement last week that costs for its planned Fort Hills project had soared by more than half.
Inflation has been the oil sands’ hobgoblin, with the costs of some projects doubling as the price of steel and other materials have skyrocketed, and companies find it difficult to find skilled labor pool in remote northern Alberta.
Where oil prices of $75 a barrel had been adequate to ensure a good profit, UBS-analyst Andrew Potter said $100 a barrel is now likely needed to produce a 10% return. Others estimates are even higher, with William Lacey, an analyst with FirstEnergy Capital, forecasting that the Fort Hills project will need crude at $115 a barrel.
Read more: Upstream Online