$60/barrel, oil companies still get 10% plus IRR

WhereNext

The National Post, 2008/10/28

Here’s why you should pay attention to what Andrew Potter has to say: The UBS Securities Inc. analyst predicted Suncor Energy Inc. (SU/TSX) would make massive spending cuts — and a few days later, it did. Others may have been contemplating similar forecasts, but Mr. Potter came out swinging, guesstimating how much Suncor would cut. He nailed it.

. j* U# b% k/ o, V; QAnd now he has a few things to say about the viability of other oil sands projects in light of the falling price of oil and the credit crunch.

+ s; s! n8 [/ e  U6 f- E“Many new oil sands investments [are] uneconomic at current [oil] prices,” he said in a research note yesterday. “New oil sands investments face a very harsh reality, but we note that not all projects are created equal.”

3 M( Q; d) @: ]( P( QMr. Potter calculates:
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) _/ P! G  n" l" M$ X• Canadian Natural Resources Ltd. (CNQ/TSX) should be able to spit out an internal rate of return (IRR) of 12.5% should oil hover around US$60 per barrel on phase one of its Horizon project.

6 ~& X1 r- \1 t2 K5 |# lWith oil at US$100/barrel, the company could generate an IRR of 17%. It could churn out positive free cash flow all the way down to US$40/barrel.

3 n1 y/ g  p2 q' l• Nexen Inc. (NXY/TSX) and partner OPTI Canada Inc.’s (OPC/TSX) Long Lake project will generate an IRR of 10% at US$60/barrel, and 13% should oil bounce back to US$100/ barrel. Even with oil at US$30/ barrel, it should still end up with free cash flow on the first phase of the development.

, Y2 v* l# m( b+ A0 {/ y3 KThe numbers change for phase two, which will likely be delayed. Mr. Potter suspects Nexen and OPTI will need oil to trade around US$100/barrel to get an IRR of 10%. But, the plans could be shaken up by holding off on the upgrader and going forward as a conventional steam assisted gravity drainage (SAGD) project.
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• EnCana Corp. (ECA/TSX)
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7 d4 d4 u, c4 x/ h! G! e% kcomes out as one of Mr. Potter’s “top picks.” It is partnered with ConocoPhillips Inc. and he argues their “integrated oil sands expansion capital will generate far above industry average rates of return.”
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; ]; [, ^# E+ Q& K9 G. Y: l' }With oil at US$60/barrel, EnCana (and ConocoPhillips) will generate an internal rate of return of at least 14% on expansions, and a 20% IRR with oil at US$100/barrel. It can be “economic” down to US$50/ barrel.

- R8 b  m* q! v- S( ]; I" N2 L( `“Due to the higher rates of return we believe the [En-Cana/ConocoPhillips] joint venture will be the least likely to defer oil sands capital,” Mr. Potter said.
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" u$ \2 D1 f- q) f* @• Husky Energy (HSE/TSX),

! |  V/ o0 Y& Q4 e9 s3 Lalong with partner BP PLC (BP/LSE), is expanding with its Sunrise SAGD project, and Toledo refinery conversion. Together, they will generate a 12% IRR with oil around US$60/barrel, and up to 17% with oil around US$100/barrel. This project is also likely to go ahead as others are deferred.
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• Canadian Oil Sands Trust (COSun/TSX) also earns “top pick” status as “a reasonably defensive stock to own given its zero decline asset base and strong free cash flow generation.”

A distribution cut may be on the way, but Mr. Potter thinks its current stock price already reflects that possibility. At US$60/barrel, the trust could still hand investors $2.50/unit, translating into a 10% yield.
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  d' f0 J1 o  ]" J• Petro-Canada (PCA/TSX) and UTS Energy Corp.’s (UTS/ TSX) Fort Hills project is in a tough spot. It will need oil to hit about US$100/barrel to get an IRR of 10%. There are ways to tinker with the project to make it better, including buying a refinery. A fully integrated Fort Hills could generate a rate of return of 11% at US$60/barrel, and 14% at US$100/barrel.

• Imperial Oil Ltd. (IMO/TSX) could also be pinched. Its Kearl project is still weaving through the regulatory process. At US$60/barrel, returns ring in between 6% and 8%; at US$100 oil, its IRR may rise to 9% to 10%, depending on bitumen prices. Translation: Imperial may go back to the drawing board.
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However, Exxon Mobil Corp. (XOM/NYSE) is a 30% partner here, and “may have more of a vested interest in proceeding” because the Kearl crude could be upgraded at its refineries. Advantage: Exxon. Imperial? Not so much. Expect delays.
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• Suncor should see positive cash flows even if oil drops to US$40/barrel.
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, k7 r% l+ a  k4 k+ u& c• Petrobank Energy and Resources Ltd. (PBG/TSX) is a tough call. It is in the midst of proving a new technology called THAI. If it comes together, its break-even point could range between US$25/ barrel and US$50/barrel.

老杨

虽然没看懂，不过还是

WhereNext

原帖由 老杨 于 2008-11-18 12:17 发表
虽然没看懂，不过还是

! k4 k8 W. }# S# R' z4 I. ]+ A) lhehe, in one word: these oil companies still earn monies at $40/barrel oil prices.

老杨

原帖由 WhereNext 于 2008-11-18 12:21 发表
3 @, ?( A+ R  L+ y

hehe, in one word: these oil companies still earn monies at $40/barrel oil prices.

7 x1 H6 Y  ~$ r: \# G3 \% S这回看懂了：石油公司每桶40块钱也赚钱。

一尘

今早听新闻也这么说，以现在的汇率，40以下alberta就有问题了。