Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Gold/Mining/Energy : Big Dog's Boom Boom Room -- Ignore unavailable to you. Want to Upgrade?

To: LoneClone who wrote (93742)	11/19/2007 9:40:14 AM
From: LoneClone	Respond to of 206183

Oilsands Costs Likely to Drop off Eventually By Lauren Krugel 16 Nov 2007 at 05:13 PM GMT-05:00 resourceinvestor.com Toronto (CP) -- Massive cost overruns at many big Alberta oilsands operations shouldn't frighten investors away from the sector, says the head of one junior oilpatch player, who sees the daunting expenses dropping over the next few years. Shamir Premji of Alberta Oilsands Inc. [TSX:AOS] said there's no reason why oilsands production can't keep chugging along, with oil prices as robust as they have been in recent months, despite the billions in cost overruns announced for projects such as Horizon and Long Lake. ''This is probably the last major oil basin in the world in which private companies can participate,'' Premji said in an interview Friday. ''So with the continual increase in demand, we do see it being an economic proposition because we really fundamentally don't see oil prices coming off too drastically.'' ''It's very fluid. Today's oil prices provide very healthy profit margins for oilsands development.'' Premji's optimism flies in the face of recent warnings that the business of pulling bitumen out of the ground is only going to get more and more expensive. Last month, Horizon operator Canadian Natural Resources [NYSE:CNQ; TSX:CNQ] said the project will cost 8% to 14% more than its original C$6.8 billion estimate - an increase of up to C$1 billion. The 2004 cost estimate for Nexen [NYSE:NXY; TSX:NXY] and Opti Canada's joint Long Lake operation was C$3.4 billion, but this past August the companies raised that to C$5.8 billion. And a National Energy Board report on Thursday suggested there could be more issues ahead, with oilsands production likely to be 200,000 barrels lower in 2015 than forecast in 2006 as a result of soaring costs. But while one of the most costly elements of the process - labour - will probably remain tight for the next few years, Premji believes that will ease once megaprojects such as Horizon and Long Lake wrap up, freeing workers and helping keep the sector afloat. And his company, like many others, is looking for the most cost-efficient ways to operate oilsands projects with a keen interest in new extraction methods such as Petrobank Energy and Resources Ltd.'s [TSX:PBG] so-called THAI technology. THAI uses air and components of the bitumen itself to heat underground reserves, making the tar-like substance thin enough to flow and is ''probably the better way to go,'' Premji said, adding that the system has a greater recovery rate than the more common steam assisted gravity drainage (SAGD) systems. High costs are just a reality in the oilsands business and there's only so much that can be done to manage them, said Joseph Doucet, a University of Alberta professor who specializes in energy economics. ''We have to recognize that these projects are incredibly large and when you're trying to work with 5,000 skilled workers at a job site it really is complicated,'' he said. ''You can't expect the same level of oversight and efficiency that you have on a project with 20 workers.'' ''There are different aspects to the cost overruns. There are some things that can be managed more than others,'' Doucet said. ''A lot of the costs are outside of the scope of the managerial oversight and the ones that are within scope are hard to manage.'' He said he expects investment in oilsands projects to taper off from its current high if costs continue to soar, but that may not necessarily be a bad thing for Alberta's economy. ''The pace of growth that we've seen over the last five years in Alberta is not sustainable... clearly the Alberta economy is feeling the impact of that level of investment in terms of inflation, labour markets, increased housing costs, stresses on infrastructure and so on.''