By Nia Williams
CALGARY, Alberta, Dec 16 (Reuters) - U.S. crude's slide to
$35 a barrel this week has left many Canadian oil sands
producers selling their oil at a loss, with some analysts
predicting even more pain in 2016.
Alberta's oil sands hold the world's third-largest crude
reserves but also have some of the highest breakeven costs
globally because of energy-intensive production methods.
Canadian heavy crude SHRWCSMc2 trades at a discount to
U.S. crude because of quality and the cost of transportation
from landlocked Alberta to U.S. markets.
The differential is currently steady near $13.75 a barrel,
putting the outright price of Canadian heavy at around $22 a
barrel, near a decade low.
Still, oil sands projects are unlikely to shut down because
of the billions of dollars already sunk into them.
ARC Financial analyst Jackie Forrest said at current prices
thermal oil sands projects are losing around C$1 ($0.7259) a
barrel, while mining operations are bleeding roughly C$3 for
every barrel produced.
"There are definitely producers at this price who are losing
money. They are not even covering variable costs associated with
producing bitumen, blending it and sending it down the tracks,"
she said.
Companies also have to contend with other expenses including
debt servicing and administrative fees.
That means even though the most efficient projects - such as
Cenovus Energy 's CVE.TO Foster Creek Christina Lake facilities
- may still be in the black, profit margins at a company-level
are thin to non-existent, said Wood Mackenzie analyst Mark
Oberstoetter.
In August, when prices for Canadian heavy crude were also
around $22, TD Securities estimated in a report that more than
three-quarters of Canada's 2.2 million barrels per day of oil
sands production were under water cost-wise.
The bank is close to releasing an updated version of the
report and declined to comment before publication.
Then, as now, Canadian producers can only react by cutting
spending aggressively, renegotiating supply contracts and laying
off staff.
Oberstoetter estimates that so far 2016 capital spending
budgets are on average around 40 percent lower than in 015.
"We were thinking in the summertime maybe 2016 would not be
as bad as 2015, but given the (price) changes and the continued
uncertainty it's pointing to a bleaker picture," he said.
Mike Dunn, an analyst at FirstEnergy (N:FE) Capital, said companies
could cut spending by another 10 percent to 20 percent if prices
remain weak.
($1 = 1.3776 Canadian dollars)
(Editing by Steve Orlofsky)