Oil Sands Outlook: How will the Challenges Facing the Industry affect Growth? 29 Global Petroleum Conference June 9-11, 29 Calgary, Alberta Bob Dunbar Strategy West Inc. 12-1 Photo Source: Syncrude Canada Limited Presentation Outline Economic Environment and Industry Outlook before the Crash The Current Situation Industry Challenges Industry Economics Industry Outlook after the Crash: Two Scenarios Prolonged Downturn Early Recovery Conclusions Oil Sands Outlook: How will the Challenges Facing the Industry affect Growth? 1
Before the Crash Global Oil Markets Strong oil demand growth Oil supply constraints Surging oil prices Canada s Oil Sands Attractive investment opportunities led to frenzied industry activity The rapid development pace led to challenges respecting: Project costs Societal impacts Environmental impacts Crude Oil Prices to July 28 $15 $14 $13 $12 $11 $1 $9 $8 $7 $6 $5 $4 $3 $2 $1 $ Dec-1 Mar-2 Jun-2 Sep-2 Dec-2 Mar-3 Jun-3 Sep-3 Dec-3 Monthly Oil Prices (WTI @ Cushing, US$/b) Mar-4 Jun-4 Sep-4 Dec-4 Mar-5 Jun-5 Sep-5 Dec-5 Mar-6 Jun-6 Sep-6 Dec-6 Mar-7 Jun-7 Sep-7 Dec-7 Mar-8 Jun-8 Sources: Canadian Association of Petroleum Producers, Imperial Oil Limited Oil Sands Outlook: How will the Challenges Facing the Industry affect Growth? 2
Comparative Oil Sands Supply Outlooks before the Crash SCO and Non-Upgraded Bitumen Supply (kb/d) 4, 4, 3, 3, 2, 2, 1, Mid-28 Outlooks 3, - 4,1 kb/d by 22 CAPP 28 6 Pipeline Planning CAPP 28 6 Moderate Growth ERCB 28 6 SW 28 8 27 28 29 21 211 212 213 214 215 216 217 218 219 22 Sources: CAPP; ERCB; Strategy West Inc. The Current Situation: Oil Sands Industry Challenges Economic Weak Oil Demand and Prices Limited Capital Availability Internal External High Project Costs and Depressed Project Economics Policy and Regulatory Uncertainties Environmental Industry Public Image Dirty Oil GHG Emission Regulations? Water Use Tailings Consolidation and Reclamation Cumulative Effects Societal Pace of Development First Nations Oil Sands Outlook: How will the Challenges Facing the Industry affect Growth? 3
Crude Oil Prices to May 29 $15 $14 $13 $12 $11 $1 $9 $8 $7 $6 $5 $4 $3 $2 $1 $ Dec-1 Mar-2 Jun-2 Sep-2 Dec-2 Mar-3 Jun-3 Sep-3 Dec-3 Mar-4 Jun-4 Sep-4 Dec-4 Mar-5 Jun-5 Sep-5 Dec-5 Mar-6 Jun-6 Sep-6 Dec-6 Mar-7 Jun-7 Sep-7 Dec-7 Mar-8 Jun-8 Sep-8 Dec-8 Mar-9 Monthly Oil Prices (WTI @ Cushing, US$/b) Sources: Canadian Association of Petroleum Producers, Imperial Oil Limited SAGD Project Capital Costs $4, Algar $35, Initial Capital Cost Intensity (C$ per b/d) $3, $25, $2, $15, $1, $5, MacKay River 1 Firebag 1 Great Divide Tucker 1 Firebag 2 Jackfish 2 MacKay River 2 High Jackfish 1 MacKay River 2 Low $ 2 21 22 23 24 25 26 27 28 29 21 211 212 Startup Year Sources: Company Announcements; Strategy West Inc. Oil Sands Outlook: How will the Challenges Facing the Industry affect Growth? 4
Mining, Extraction & Upgrading Project Capital Costs $18, $16, Fort Hills Phase 1 Initial Capital Cost Intensity (C$ per b/d) $14, $12, $1, $8, $6, $4, $2, Suncor Millennium AOSP Phase 1 Syncrude Stage 3/UE1 AOSP Expansion High AOSP Expansion Low Synenco N Lights CNRL Horizon Phase 1 $ 2 21 22 23 24 25 26 27 28 29 21 211 212 Startup Year Sources: Company Announcements; Strategy West Inc. Oil Sands Project Economic Assumptions Product Initial Capital Intensity (Real 28 C$ per b/d) Non-energy OPEX (Real 28 C$/b) Purchased Natural Gas SCO Yield SAGD Dilbit $3,-$45, (Bitumen) $1. 1.25 GJ/b (1.18 MMBtu/b) NA Mining, Extraction & Upgrading Synthetic Crude Oil $1,-$16, (SCO) $2..85GJ/b (.81 MMBtu/b) 83% GHG Emission Penalty ($/t) $5 $5 Source: Strategy West Inc. Oil Sands Outlook: How will the Challenges Facing the Industry affect Growth? 5
Oil Sands Project Investment Returns Steam Assisted Gravity Drainage Mining, Extraction & Upgrading 25% 25% Internal Rate of Return 2% 15% 1% 5% Internal Rate of Return 2% 15% 1% 5% % $6 $8 $1 $12 $14 WTI Price (28 US$/b) $3, per b/d $35, per b/d $4, per b/d $45, per b/d % $6 $8 $1 $12 $14 WTI Price (28 US$/b) $1, per b/d $12, per b/d $14, per b/d $16, per b/d Source: Strategy West Inc. Economic Implications Based on recent project costs: New SAGD projects require WTI prices of US$7-8/b for acceptable returns New mining, extraction and upgrading projects require WTI prices of US$7-1/b for acceptable returns However: Project costs are dropping - but how much? The oil price thresholds for attractive economic investments are also dropping Oil Sands Outlook: How will the Challenges Facing the Industry affect Growth? 6
Strategy West s Oil Sands Industry Outlooks Comprehensive Project Database Industry Outlooks Project-by-project timing adjustments Project-by-project probabilities Aggregation of results Project listing is available for download at www.strategywest.com Existing & Proposed Commercial Project Capacities Capacities (kb/d bitumen) 3, 3, 2, 2, 1, Mining Athabasca In Situ Cold Lake In Situ Announced Disclosure Withdrawn Application Approved Suspended Construction Operating Peace River In Situ Totals kb/d Announced 1,569 Disclosure 55 Withdrawn 217 Application 1,347 Approved 1,374 Suspended 73 Construction 317 Operating 1,767 Grand Total 7,214 Sources: Operator Applications and Announcements; Strategy West Inc. Oil Sands Outlook: How will the Challenges Facing the Industry affect Growth? 7
Commercial Project Startups During 28 Integrated Mining CNRL Horizon Integrated In Situ Nexen/OPTI Long Lake Phase 1 In Situ CNRL Primrose East Devon Jackfish Phase 1 EnCana Christina Lake Phase 1B Shell Orion Phase 1 Upgrading Suncor Millennium Coker Unit Sources: Operator Applications and Announcements; Strategy West Inc. Commercial Projects Presently Under Construction Integrated Mining AOSP Expansion (21) Jackpine Mine Phase 1A Scotford 1 Upgrader Expansion Mining Imperial/ExxonMobil Kearl Lake Phase 1 (212) In Situ EnCana Foster Creek Phases 1D & 1E (29) MEG Christina Lake Phase 2A (29) StatoilHydro Leismer Demonstration (29) EnCana Christina Lake Phase 1C (21) Devon Jackfish Phase 2 (211) Sources: Operator Applications and Announcements; Strategy West Inc. Oil Sands Outlook: How will the Challenges Facing the Industry affect Growth? 8
Commercial Project Suspensions, Deferrals & Cancellations Integrated Mining CNRL Horizon Phases 2&3 Fort Hills Phase 1 Northern Lights* Upgrading BA Energy Heartland North West Sturgeon StatoilHydro Strathcona* Suncor Voyageur** Total Strathcona * Application Withdrawn Sources: Operator Applications and Announcements; Strategy West Inc. In Situ Connacher Algar** ConocoPhillips Surmont Phase 2 Petro-Canada MacKay River Expansion Shell Carmon Creek* Suncor Firebag Phase 3** Integrated in Situ Nexen/OPTI Long Lake Phase 2 ** Construction Suspended After the Crash: Two Scenarios Prolonged Downturn Projects under construction are completed No near-term economic recovery Slow growth after recovery led exclusively by established industry players No investment in new upgrading capacity Early Recovery Projects under construction are completed Economic recovery by year-end 29 Moderate growth after recovery led mainly by established industry players Some investment in new upgrading capacity Oil Sands Outlook: How will the Challenges Facing the Industry affect Growth? 9
Bitumen Production Outlooks Prolonged Downturn Early Recovery 3, 3, 3, 3, Bitumen Production (kb/d) 2, 2, 1, Bitumen Production (kb/d) 2, 2, 1, 26 28 21 212 214 216 218 22 26 28 21 212 214 216 218 22 Mining N Athabasca S Athabasca Cold Lake Peace River Other Mining N Athabasca S Athabasca Cold Lake Peace River Other Source: Strategy West Inc. Oil Sands Supply Outlooks Prolonged Downturn Early Recovery 3, 3, 3, 3, Oil Sands Supply (kb/d) 2, 2, 1, Oil Sands Supply (kb/d) 2, 2, 1, 26 28 21 212 214 216 218 22 26 28 21 212 214 216 218 22 Synthetic Crude Oil Non-Upgraded Bitumen Synthetic Crude Oil Non-Upgraded Bitumen Source: Strategy West Inc. Oil Sands Outlook: How will the Challenges Facing the Industry affect Growth? 1
Comparative Oil Sands Supply Outlooks since the Crash SCO and Non-Upgraded Bitumen Supply (kb/d) 4, 4, 3, 3, 2, 2, 1, Sources: CAPP; Strategy West Inc. Recent Outlooks 2, - 3,1 kb/d by 22 Mid-28 Outlooks 3, - 4,1 kb/d by 22 CAPP 29 6 Growth CAPP 29 6 Operating & In Construction SW 28 12 Early Recovery SW 28 12 Prolonged Downturn 27 28 29 21 211 212 213 214 215 216 217 218 219 22 Conclusions The economic/financial crisis caused project deferrals and cancellations Projects under construction will increase oil sands industry supply to about 2 million b/d by early next decade Based on recent project costs, the oil sands industry needs WTI oil prices of US$7-1/b (real 28) to justify new investments; however, project costs and the oil price threshold are dropping Industry growth will resume with global economic recovery; however, the rate will depend upon oil prices and resolution of policy, environmental and regulatory issues Oil Sands Outlook: How will the Challenges Facing the Industry affect Growth? 11
Thank You Questions? Please visit www.strategywest.com for oil sands project lists and other detailed oil sands industry information Oil Sands Outlook: How will the Challenges Facing the Industry affect Growth? 12