New Report Finds Oil Sands Production Costs Below U.S. Tight Oil

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Canada’s oil sands are often thought of as one of the world’s most expensive, marginal sources of crude. That may not be the case, however, according to a new report by Scotiabank Economics. After examining more than fifty plays across Canada and the United States, the report found that, on average, Canada has lower full-cycle breakeven oil production costs than the United States. Moreover, the report found that the oil sands have lower associated production costs than the “light, tight” crude from American shale that is upending the North American oil market.

On average, Canadian oil production was found to have an average full cycle breakeven cost of between $63 and $65 per barrel as compared to the U.S. average of $72. These breakeven costs were calculated by determining the price of West Texas Intermediate benchmarked oil required for a given project to yield a 9 percent after-tax return on full-cycle costs.

Related Article: Supermajors Balk at Canadian LNG Profit Tax

Crude Oil Cost Curve

Full report can be found here. Individual plays deviated from this average, however. Of the plays producing a significant volume of oil, Southwest Saskatchewan Bakken came in with the lowest break-even cost of $44.30 per barrel. Averaged over aggregate production, the Eagle Ford, U.S. Bakken, and Permian Basin plays clocked in with $63.57, $69, and $81 per barrel break-even costs, respectively.

Most importantly for the oil sands — and dispelling the high-cost myth surrounding them — the full-cycle break-even cost of in-situ, steam-assisted gravity drainage (SAGD) bitumen is $63.50, lower than the light, tight American crude that has been receiving so many headlines as of late. SAGD bitumen production currently accounts for 1.08 million bbl/d, 46 percent of aggregate oil sands production. Furthermore, it is expected to represent 75 percent of the 1.2 million bbl/d growth projected by 2020.

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