Skip to main content

Oil sands development difficult, costly

Canada's oil sands projects are becoming increasingly problematic, thanks to escalating costs and growing environmental concerns. The recent boom that centers around this energy resource claims Fort McMurray as its home base, but as the Financial Times reports, this Alberta boom-town is experiencing growing pains. That's something the town seems to share with the local resource extraction projects.

Like the municipality, the oilsands industry is discovering the downside of a boom. Excitement over the spiralling oil price has given way to frustration over shortages of labour and equipment and soaring costs. The stampede has also driven up land prices for new oilsands projects.

The oil sands, or tar sands (depending on your point of view), have always been something of a difficult resource base to exploit. Extracting the heavy oil from thick mats of clay and sand is an energy intensive and land disrupting process. The tar sands deposits are actually mined open pit style or extracted by steam injection, a method which requires large amounts of water and energy.

Add the spectre of sizeable greenhouse gas emissions and it's easy to see that this activity will draw protests on multiple fronts. But even without outside protest, the companies involved in producing energy from the tar sands are encountering difficulties with higher than expected costs. These companies were probably not working from a base of overly-sunny expectations; everyone has known for quite some time that the tar sands projects were economical only during times of high crude oil prices.

What drove people to develop this resource was its sheer size and the prospect of extracting hydrocarbons in a politically stable, mining friendly environment. Alberta's tar sands are estimated to contain 175 billion barrels of oil (proven reserves) and this is where Western development has been concentrated. Venezuala's Orinoco oil belt is home to similarly sized "heavy oil" deposits, but does not meet the description of a politically stable area at this time. While some of the bigger players involved in the region are sticking it out, "new taxes and ownership measures" imposed by the Venezuelan government are unlikely to attract new investment and operations from foreign companies.

The tar sands projects have been kept aloft by high oil prices, but recent conditions have brought about some tightness and uncertainty in the industry. Shell Canada and Western Oil Sands issued a warning last week about cost pressures related to the expansion of their Athabasca projects, causing Western's share price to fall by 13% over the next two days. As this Resource Investor article points out, the "market chill" extended to most of the tar sands producers trading on the Toronto Stock Exchange.

Popular posts from this blog

Seth Klarman: Margin of Safety (pdf)

Welcome, readers! Signup for free email updates at the Finance Trends Newsletter . Update: PDF links removed due to DMCA notice. Please see our extensive Klarman book notes below. New visitors, please check the Finance Trends home page for all new posts. Here's something for anyone who has been trying to get a look at Seth Klarman's now famous, and out of print, 1991 investment book, Margin of Safety .  My knowledge of value investing is pretty much limited to what I've read in Ben Graham's The Intelligent Investor (the book which originally popularized the investment concept of a "Margin of Safety"), so check out the wisdom from Seth Klarman and other investing greats in our related posts below. You can also go straight to Ronald Redfield's Margin of Safety book notes .    Related posts: 1. Seth Klarman interviews and Margin of Safety notes     2. Seth Klarman: Lessons from 2008 3. Investing Lessons from Sir John Templeton 4.

Slate profiles Victor Niederhoffer

Slate's recent profile of writer/speculator, Vic Niederhoffer has been getting some attention from traders and finance types in recent days. I thought we'd take a look at it here too, to offer up some possible educational value from Vic's experiences with trading and loss. Here's an excerpt from Slate's profile of Victor Niederhoffer : " I've enjoyed getting your e-mails. It sounds like you've thought a lot about being wrong. Well, the reason you contacted me, to call a spade a spade, is that I'm sort of infamous for having made a big, notorious, terrible error not once but twice in my market career. Let's talk about those errors. The first was your investment in the Thai baht, which pretty much wiped you out when the Thai stock market crashed in 1997. I made so many errors there it's pathetic. I made one of my favorite errors: "The mouse with one hole is quickly cornered." That is key. There are certain decisions you make in li

William O'Neil Interview: How to Buy Winning Stocks

Investor's B usiness Daily founder and veteran stock trader, William O'Neil share d his trading methods and insights on buying winning stocks in an in-depth IBD radio interview. Here are some highlights from William O'Neil's interview with IBD: William O'Neil's interest in the stock market began when he started working as a young adult.  "I say many times that I didn't get that much out of college. I didn't have much interest in the stock market until I graduated from college. When I got married, I had to look out into the future and get more serious. The investment world had some appeal and that's when I started studying it. I became a stock broker after I got out of the Air Force."    He moved to Los Angeles and started work in a stock broker's office with twenty other guys. When their phone leads from ads didn't pan out, O'Neil would take the leads and drive down to visit the prospective customers in person.