Alberta Oil Sands Companies Weathering the Storm

The Alberta oil sands have faced some serious trouble this year, and took another hit Wednesday when heavy Canadian crude hit its lowest level in over a decade. The drop was likely due to Enbridge (TSX:ENB,NYSE:ENB) closing two of its main pipelines in the US due to a leak.
The restart date for the Spearhead pipeline was still unknown as of Thursday, according to Reuters. However, the company’s Flanagan South pipeline, also known as Line 59, was brought back online on Wednesday, giving the heavy Canadian crude price a slight boost. The pipelines are the two main conduits linking the Alberta oil sands to refineries on the US Gulf Coast.
The shutdown of BP’s (NYSE:BP,LSE:BP) Whiting refinery earlier this week also took a toll on prices. The refinery was closed down after piping inside the the 240,000-barrel-per-day crude distillation unit was damaged, and according to another Reuters article it will take at least a month to repair. Whiting is one the biggest consumers of heavy Canadian crude.

Alberta oil sands companies still standing

Aside from this week’s turmoil, the overall dip in oil prices has hit Alberta oil sands companies hard, with most just breaking even at their operations. According to CBC News, oil sands companies are receiving about half as much money for oil compared to their North American counterparts. That’s because the value of oil from Alberta has dropped by 50 percent since June.
“At today’s prices, the typical producer is just able to cover those variable costs; many producers are above the typical level and they would be losing money for each barrel that they produce, if they are selling at the spot price today,” Jackie Forrest, vice president of ARC Financial, told the publication.
Given those circumstances, market participants might be keen to stay away from companies focused on the Alberta oil sands. However, it seems that a fair number of exploration and production companies are managing to stay afloat.
One example is Rock Energy (TSX:RE), which was given a “buy” recommendation from Dundee Capital Markets following the release of its Q2 results. Although the company posted a financial loss, its production levels were in line with expectations at 3,974 barrels of oil equivalent per day (boe/d). Dundee also highlights the company’s recent drilling — a 13-well Viking program began during Q2, with 10 wells due for completion in August and the remaining three in Q4.
Another Alberta oil sands company that has caught the eye of analysts is Spartan Energy (TSX:SPE). The company also just released its Q2 results, reporting a 36-percent increase in production compared to Q2 2014, at 8,710 boe/d. What’s more, the company also reduced its production costs to $16.13 per boe; that’s compared to $18.23 in Q2 last year.
“In light of current market conditions Spartan is aiming to preserve its stilleconomic inventory in order to maintain liquidity and possibly act on acquisition opportunities that may arise,” Dundee analyst Brian Kristjansen said in a research note. “Capex has been cut 19 percent to $85 million from the prior $105 million, with average production guidance reduced 5 percent, or 500 boe/d, to 8,700 boe/d and exit guidance reduced 8% to 9,100 boe/d from 9,900 boe/d.”
Given current market conditions in the Alberta oil sands and worldwide, it’s definitely encouraging to see companies that analysts are still positive on. Their willingness to remain involved in the space means that there are also opportunities for investors not scared away by low oil prices.
 
Securities Disclosure: I, Kristen Moran, hold no direct investment interest in any company mentioned in this article.
Related reading:

WCS Discount Dips as US Demand for Alberta Crude Oil Increases

Sid Rajeev of Fundamental Research: Very Bullish on Oil

Marin Katusa Talks Oil Market Trends at Canvest 2015