Oil sands at high oil prices Report

Insight 17 March 2022

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Report summary

With the Russia/Ukraine conflict putting extreme pressure on global commodities, Canada’s oil sands sector is reaching peak production levels at a unique time. Production is now past the three million barrel per day mark. Using Lens Valuations, we can quickly run price scenarios across an entire sector or region. A 2022 price of WTI US$110/bbl means annual oil sands cash flows to companies after maintenance costs, operating costs, royalties and taxes would total US$56 billion. That is a 2.4x higher than if prices averaged the US$70/bbl WTI we expected at the start of the year. Government share in royalties and taxes also benefit, making a 3x jump to US$41 billion. It is unlikely the higher cash generation is re-invested into growth. Instead, funds will be earmarked for future carbon reduction projects, further consolidating deals and continued shareholder payments.

Executive summary
- Cash flow outcomes from higher prices in 2022
- Corporate share
- Government share
- What does development look like in an upside scenario?
- Where will the cash flow go to?
- 1. Investors hold the reins and are rewarding cash return strategies
- 2. Cdn$70 billion needed for emissions reductions
- 3. A final use for cash will be consolidation