Analysts: Oil Sands Cos Losing up to $50M a Day as Fires Rage

Reuters

NEW YORK, May 20 (Reuters) - Out-of-control wildfires that have consumed over a million acres of land in Canada's Alberta are costing oil companies as much as $50 million a day in lost production, according to analysts.

Alberta's oil producers curtailed production by May 5 as fires prompted the evacuation of Fort McMurray, a central production hub. By May 9, more than 1 million barrels of daily oil output had been halted.

"We estimate total daily pre-tax profit loss at $45 to $50 million," Barclays analyst Paul Cheng said in an email to Reuters.

For many companies, the shut-ins will translate directly to lower revenue in the second quarter, said Chris Feltin, an analyst at Macquarie Capital in Calgary.

"The big thing here is that business interruption insurance is unlikely to be claimed because the damage isn't direct to their facilities, so this is something that is going to roll through on a revenue and cash-flow basis on the second quarter," Feltin said.

There is no guarantee on how soon production will return to normal.

Both more expensive light synthetic crude and cheaper heavy bitumen from oil sands production have been shut in, with a total of more than 1.2 million barrels of production offline, said Feltin. "That's a fair amount of production for both crude slates that is offline."

Syncrude trades at a premium to benchmark U.S. crude futures, while Western Canadian Select crude trades at a discount, and bitumen is offered for even less.

The spot price of Syncrude is currently $51 a $52 a barrel, said Cheng. Syncrude for June delivery is trading at $3.20 a barrel above the price of U.S. crude futures.

WCS is trading at about $37 to $38 a barrel, he said, and bitumen is currently at about $33.50 a barrel.

About 476 million bpd of synthetic crude production and 567 million bpd of bitumen production are offline due to the fire, Cheng wrote on Friday. An additional 300,000 bpd of synthetic crude production is offline due to maintenance.

Looking exclusively at the fire-induced shut-ins, that would indicate total losses are about $45 million. That number can be cut slightly because Suncor's upgraders produce about 40 percent synthetic light oil as well as a combination of light sour crude and diesel fuel, Cheng said.

As a result, Suncor's overall realized price is lower than syncrude by about 10 percent, Cheng said.

He estimated total daily pre-tax profit losses at $30 million to $35 million for mining and upgrading operations, and another loss of $15 million a day for oil produced using SAGD, an enhanced oil recovery technology for bitumen and heavy crude.

Suncor shares have lost 6 percent since the beginning of May.

(Reporting By Jessica Resnick-Ault; Editing by Chizu Nomiyama)

Copyright 2016 Thomson Reuters. Click for Restrictions.

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