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Canada Oil Sands Output Forecast Cut on Project Delays

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Alberta Oil Sands
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OTTAWA (Dow Jones Newswires), Dec. 12, 2008

Forecasts for Canada's oil sands output have been scaled back again, as the wave of project delays cut into already reduced industry estimates.

The Canadian Association of Petroleum Producers now expects oil sands output to hit 2.37 million barrels a day in 2015, down nearly 400,000 barrels a day from its annual forecast made in June.

Last year, the industry produced 1.2 million barrels a day.

"There's relatively little change from our summer report through 2012, but there's a significant drop in 2012-2015," Greg Stringham, CAPP's vice president of markets and fiscal policy, said Thursday.

Canada's total oil production is expected to near 3.6 million barrels a day in 2015, down around 300,000 barrels a day from the summer forecast, Stringham said.

Plummeting crude prices and the financial market turmoil have prompted a slowdown in Alberta's costly oil sands, which house the biggest crude reserves outside North America. A number of oil sands producers are delaying projects or deferring major capital outlays as oil has slumped 70% from July's record highs near $150 a barrel, crunching into cash flow amid tightened credit markets.

Even sector heavyweights such as Royal Dutch Shell PLC have been affected: the Anglo-Dutch major is holding off on around 200,000 barrels a day of extra capacity in an effort to cut costs. Many of the delayed projects were due to start up around 2012, such as Petro-Canada's ambitious Fort Hills development. This was meant to add another 160,000 barrels of bitumen a day but has been pushed back after costs spiked 50% to top C$28 billion.

Analysts reckon most new developments need crude prices above $80 a barrel to make a decent return. Oil settled 10% higher at $47.98 a barrel Thursday, but fell perilously close to $40 last week.

However, most companies are maintaining or even boosting oil and gas output over 2009 despite major spending cuts.

"In general, the projects that are being cut are more of a longer-term nature," said Chris Feltin, vice-president and director of institutional research at Tristone Capital Corp.

"The pace of spending on those (delayed projects) are really being cut back but that's not capital that would have been adding production in 2009."

CAPP's revisions for next year are a "minor" 80,000 barrels a day, or "a little less than we were anticipating," Stringham said.

Production is expected to start catching up to CAPP's summer forecasts by 2020 as the delayed projects start coming onstream, though it will still be lower, he added.

In June, CAPP cut 260,000 barrels a day off its 2015 production outlook versus the previous year's forecasts. It also reduced oil sands estimates by 180,000 barrels a day, to 2.77 million barrels a day, on mounting cost and regulatory pressures.

CAPP represents more than 95% of Canada's upstream oil and gas industry.  

Copyright (c) 2008 Dow Jones & Company, Inc.

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