Survival, not growth, is the new mantra in the oilpatch’s great war on costs

, Bitcoin Tips

Some Alberta producers have cut costs by 42% during this oil price crash, but what’s unclear is whether they have done enough.

As oil prices started biting last summer, a major Canadian energy company in Calgary began changing towels at its SAGD camp facility twice a week rather than daily. It may not have been a major decision, but it neatly illustrates the pressure that the entire industry is under.

How much does it cost to produce a barrel of Canadian oil

“It’s small, tiny thing, but industry has done a million things like that,” said Rusty Braziel, chief executive of Houston-based RBN Energy consultancy and author of The Domino Effect, who heard the story from the SAGD client this week. “If they had made that change two years ago, people would have complained, quit. Guess what happened when they implemented it? Nobody complained.”

Oil prices may have jumped US$20 per barrel to US$46 during the past two months, but it’s cold comfort for the Canadian oilpatch, which has been decimated by an 18-month siege led by Saudi Arabia and its cohorts.

Helpless against the low prices championed by the Organization of the Petroleum Exporting Countries, the rest of the industry has, in turn, waged a war on costs. Deep in the paper trenches, executives are hacking away at years of profligate spending. Survival, not growth, is the new mantra.

But it’s unclear whether they have done enough.

“What we have seen over the past year is a remarkable reduction in full-cycle costs,” said Kevin Birn, a Calgary-based analyst at IHS Energy. “But we also saw incredible reductions globally from their competitors. And so the question is: will it be enough to maintain their competitiveness? I think the jury is out on that.”

Oilsands stalwarts Suncor Energy Inc. and Cenovus Energy Inc. both posted first-quarter losses, despite appreciable cost reductions. The Conference Board of Canada expects the industry to rack up $3 billion in losses this year to add to the $7 billion of red ink last year.


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