Is the Worst Over for the Canadian Oil Sands?

Oil producers in Canada have delayed 20 oil sands projects since prices started slumping in 2014. Not only did oil companies lack the capital resources to fund these developments, but the combination of weak prices and high costs would have made most oil producers uneconomic in the current environment.

However, in one of the first signs that conditions are starting to improve, Cenovus Energy Inc. (TSX:CVE)(NYSE:CVE) and MEG Energy Corp. (TSX:MEG) said they are considering moving forward with new projects.

Getting ready to green-light Phase G

Like most oil sands producers, Cenovus Energy pressed pause on new projects in response to the oil downturn. Because of that, the company and its joint venture partner ConocoPhillips stopped engineering work on Phase G of their Christina Lake facility and Phase H of Foster Creek in early 2015. However, with industry conditions starting to improve a bit, the companies are considering giving Christina Lake Phase G the green light this fall.

Cenovus Energy has already earmarked the spending of a little bit of capital on the project to complete the detailed engineering. Further, the company is in the process of rebidding it to take advantage of the weak industry conditions to obtain a lower price. If all goes well, the company could sanction the project by the end of the year.

A reinvestment into the future

MEG Energy, on the other hand, is considering an investment of up to $30 million on growth projects later this year. That said, this capital would come from savings from efficiency gains and not from a boost to the company’s capex budget, which is expected to remain unchanged at $170 million. Still, instead of using the savings to bolster its balance sheet, MEG is thinking about reinvesting to boost growth.

Further, the company continues to plan additional projects that it hopes to move forward with at some point in the future. These projects could eventually boost its production from its current rate of about 80,000 barrels per day (BPD) up to a range between 110,000 BPD and 120,000 BPD.

Not ready just yet

Though Cenovus Energy and MEG Energy are considering investments to boost output, that doesn’t appear to be part of an industry trend.

Oil sands leader Suncor Energy Inc. (TSX:SU)(NYSE:SU), for example, has made it clear that it has no plans to approve any additional growth projects. Instead, the company plans to continue to pursue acquisitions; its primary focus is offshore assets in eastern Canada or the North Sea instead of any additional boost to its oil sands operations.

Meanwhile, other producers that deferred projects during the downturn have yet to signal a willingness to move forward just yet. Canadian Natural Resources Limited (TSX:CNQ)(NYSE:CNQ), for example, has had its Kirby North Phase 1 project on hold since early 2015 and will likely keep it on hold until prices vastly improve.

Meanwhile, French oil giant Total SA (ADR) (NYSE:TOT) and its partners, including Suncor Energy, have had their Joslyn and Voyageur projects on hold for years. Total said that those projects were on “a long backburner,” suggesting that it will be quite some time before the company and its partners consider giving them the green light.

Investor takeaway

While a couple of oil sands growth projects could finally be approved later this year, it doesn’t appear to signal that the worst is over in the region. Most other producers have no plans to restart long-stalled projects. In fact, it could be several years before these companies feel comfortable enough with the market to green-light new growth projects.

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Fool contributor Matt DiLallo owns shares of ConocoPhillips.

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