By Nia Williams and Mike De Souza
CALGARY, Alberta, Sept 1 (Reuters) - ConocoPhillips (NYSE:COP) COP.N
and Husky Energy Inc HSE.TO announced key milestones in
bringing two new oil sands projects online on Tuesday,
underlining how some producers in the high-cost sector are
boosting production even as crude prices tumble.
The two projects will add around 178,000 barrels per day to
the 2.3 million bpd already being produced from the oil sands,
the world's third largest crude reserves after Saudi Arabia and
Venezuela.
The Canadian Association of Petroleum Producers forecast in
June that oil sands production to hit 3.1 million bpd in 2020.
That forecast may be overstated however, as Imperial Oil
IMO.TO has since delayed plans to expand its Kearl project by
another 125,000 bpd. ID:nL1N0Z31DI
The start up announcements on Tuesday also come as around
900 oil company jobs were cut in Canada, 500 of those by
ConocoPhillips, and the U.S. benchmark crude CLc1 dropped more
than 6 percent on the day to close to $45 a barrel. O/R
U.S. crude hit a 6-1/2-year low of $38.24 on Aug. 24, a
65-percent drop since June 2014.
Even though many oil sands projects are close to losing
money on every barrel at current prices, new production is still
coming online because projects were mostly paid for before the
price crash.
"Keep in mind this project was sanctioned in 2010 and any
associated costs are largely behind us," said Husky spokeswoman
Kim Guttormson.
Husky said it has started steam operations at the second of
two processing plants at its Sunrise project, a joint venture
with BP Plc BP.L that will reach full capacity of 60,000 bpd
by the end of 2016.
Conoco announced first oil at its Surmont 2 thermal project
in northern Alberta, three months after it began injecting steam
into the reservoir. The project is a joint venture with Total
E&P Canada TOTF.PA and will ramp up to 118,000 bpd by
end-2017.
ConocoPhillips spokesman Rob Evans declined to provide
operating costs for Surmont but said it was expected to provide
50 years of production.
FirstEnergy (NYSE:FE) Capital analyst Mike Dunn said the billions of
dollars of costs already sunk into long-term projects mean they
will incur fixed costs even when not producing.
"Even if you are starting up in a low oil price environment,
unless the long-term price outlook has changed you are still
going to start up. You might as well get some revenue instead of
zero revenue," Dunn said.
Oil sands projects already being built are unlikely to be
scrapped, but many companies including Cenovus Energy Inc
CVE.TO and Royal Dutch Shell RDSa.L have deferred final
investment decisions on projects proposed for 2018 and beyond.
(Editing by Marguerita Choy)