Fort Hills gets the green light
Bring on the boom: another oil sands project is put on the docket
When he was younger, Max Fawcett wanted to make a mint in the markets. Now as the managing editor of Alberta Venture he gets to write about them. Close enough, right? He can be reached at email@example.com
by Max Fawcett
Fort Hills is officially a go. As part of its third quarter earnings release, Suncor (TSE:SU) announced that it would be moving ahead (along with its two partners, Total and Teck Resources) on yet another massive new oil sands mine. This one is expected – for now, anyways – to cost $13.5 billion, and should, the company estimates, come in at a per-barrel cost of $84,000. The first barrels of bitumen should flow in late 2018, and the project is expected to ramp up to 90 per cent of its 180,000 barrel per day nameplate capacity within a year.
The question for analysts, of course, is whether it will meet those cost targets. And while the overruns on Imperial’s Kearl project would seem to suggest that’s unlikely, FirstEnergy is more optimistic on the matter. “Given that Imperial Oil’s Kearl Initial Development project cost approximately $117,000 per bbl/d, some may be skeptical of the $84,000 per bbl/d estimate for the Fort Hills project. However we believe Kearl Phase 1 costs would have been similar, and probably cheaper, than this metric, if we excluded cost overruns associated with delayed module transportation, changing the scope of Kearl Phase 1 post sanctioning, and the infrastructure costs that Kearl Phase 1 is carrying for the eventual tripling of capacity later this decade.”
AltaCorp Capital, meanwhile, released a particularly bullish take on two Alberta companies in its daily note today. First up is Baytex Energy (TSE:BTE), which analyst Dirk Lever likes for its ability to use rail capacity to arbitrage heavy oil prices, something that allows it to realize higher prices that forecast. “Rail eliminates the need to blend heavy oil with diluent to meet pipeline specifications, bypassing the WCS price altogether,” Lever wrote. “Effectively, rail allows Baytex to access Mayan crude (heavy oil) prices by delivering directly to the Gulf Coast refiners. While Baytex does incur a higher transportation charge than by pipeline, rail is an integral part of Baytex operations.” He has a $55 target and an outperform rating on its shares, which are currently trading hands at $43 and change.
His colleague Dana Benner likes Horizon North Logistics (TSE:HNL), an oilfield services company heavily tied into the oil sands (meaning it should be particularly happy about the news on Fort Hills) and has decent leverage to the emerging LNG play in B.C. “Regarding potential new contracts for large camps, management noted it expects an announcement in the coming weeks,” Benner wrote. “Specifically, management highlighted preliminary interest from engineering and pipeline construction companies involved with the build-out of coastal and supply-region LNG infrastructure (although still in its still early stages).” He has a $13 target and outperform rating on its shares, a more than 50 per cent premium on where they’re trading today.