Oil prices drop and investment in Canadian oil sands is risky
A new study says the recent increase in global oil production and the ensuing drop in price may threaten the profits of energy companies that have invested in Canadian oil sands, the world’s most expensive extraction operation.
The think tank Carbon Tracker Initiative (CTI) of London reported Aug. 15 that it simply doesn’t pay for companies to drill for oil in deep-water projects such as those off the coasts of Africa and South America, unless their oil can sell at between $115 and $127 a barrel. Also the risk of drilling in western Canada is ever bigger.
Yet as recent conflicts die down in key oil-producing regions, production is remaining steady and in some cases improving, and the average cost of oil is now hovering around $100 a barrel.
As a result, some oil companies that invest heavily in oil exploration could end up losing money, according to CTI.
Cancellation or deferral of the expensive projects “is becoming increasingly necessary as near-term cash flows are not sufficient to maintain both dividends and capital expenditure plans,” the CTI report concluded.
“This capital [invested in these costly projects] could instead be returned to shareholders rather than being put at risk in projects that are already high cost and low return,” CTI concluded.
Source: oilpricecom
