Heavy Oil Producers Cautioned To Look At Short-Term

by James Mahony

To keep up with investors, Canadian producers should consider the shorter-term returns on the heavy oil projects, a conference was told in Calgary.

Finding out what drives investors is key to learning how they view the importance of heavy oil, Matt Janisch, managing director at BMO Nesbitt Burns Inc. in Calgary, told the Canadian Heavy Oil Association 's Full Steam Ahead conference.

"More and more, they invest on a short-term basis. It's important to recognize that investors get measured on a quarterly basis. The pressure is on, everyday. You see less and less long-term and more and more short-term investors. The market is very much momentum-driven," he said.

"That's a bit of a disadvantage for a number of major projects, where there's a lot of lead-time involved. But that's the situation," added Janisch.

Nevertheless, Janisch said he is optimistic about the future of heavy oil. Acknowledging a gradual but steady decline in Western Canadian light oil production in recent years, he provided figures showing bitumen is making up a relatively larger portion of production over time.

"We think that that trend is going to continue. That Western Canada is moving towards a synthetic heavy bitumen and light oil is less and less important, going forward."

Janisch said almost every senior Canadian oil producer has a major heavy oil project in the works, either involving steam assisted gravity drainage or other oilsands extraction methods.

He said there were very few "pure" heavy oil plays left. "They're all gone. A lot of the companies that were pure or close to pure have gone." Of those producers that are close to being pure, "it's hard to get them to admit that, with natural gas prices where they are," Janisch said.

He cited other factors affecting crude prices, including recent tight heating oil inventories, which are starting to ease. On the other hand, "political tensions and infrastructure issues are also going to be supportive of oil prices," Janisch said.

He also has noticed a gradual erosion over the last 15 years of excess capacity among the Organization of Petroleum Exporting Countries . In 1990, he recalled, if one OPEC producer shut the taps, another would increase production.