More oil firms move into costly oil sands

More oil firms are joining the rush to tap oil from sands in Canada’s Alberta province, a costly process that may secure future output but needs higher oil prices to make money.

The moves into oil sands offer access to oil reserves that rival those of Saudi Arabia and lie outside the volatile Middle East. But Statoil’s deal looks expensive and the rewards lie far in the future, analysts say.
“I’m slightly skeptical about large new positions in Canadian oil sands,” said Jason Kenney, oil analyst at ING in Edinburgh, who has a “hold” rating on Statoil.

“My view of the Statoil deal is it’s a huge expense for a company of that size. It will be capital intensive. Cash-flow rewards are possible but they are a long way away.”

Unlike conventional oil, oil sands are deposits of bitumen, a heavy, viscous oil that must be converted into an upgraded crude oil before refineries can use it to make gasoline and other fuels.

The rise in investment comes as companies face growing challenges in finding big sources of conventional oil. Saudi Arabia is off-limits to foreign oil investors and areas like the North Sea are in decline.

“Should those that have missed this play redouble their efforts to access the oil sands? Not necessarily,” Citigroup said in a research note.

“The appeal of the resource base is not enough, we argue, to make this play essential to the majors.”

Reuters