Canadian Oil Sands Projected to Drive 2010 Oil & Gas Production Spending

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--North American oil and gas producers are expected to spend heavily on engineering, materials, and construction for projects with a scheduled 2010 start date, according to Jesus Davis, Industrial Info's manager of research for the Oil and Gas Industry. Industrial Info is tracking North American oil and gas production projects carrying a total investment value (TIV) of $15.6 billion that have a 2010 construction start date. Project spending next year is expected to be nearly triple project TIV from 2009 ($5.32 billion), and more than double 2008's TIV of $7.37 billion, Davis said.

Click on image at right for details of Oil & Gas Industry spending, 2006-10.

Davis was speaking to about 300 attendees at Industrial Info's "Twenty-Ten North American Industrial Market Outlook," held November 10 at the White Oak Plantation in Baton Rouge, Louisiana. Attendees represented a broad spectrum of industry: equipment vendors, distributors, manufacturing firms, engineering and construction firms, labor unions, and financial service companies. The "Twenty-Ten Industrial Market Outlook" event coincides with Industrial Info's release of the 2010 Global Industrial Outlook, which highlights the industrial spending forecast for the coming year. Since 1993, IIR has published a forecast for capital and maintenance spending for the industrial market in North America, and the 2010 outlook marks the fifth year of projecting spending estimates around the world.

North American oil and gas production spending will be driven by several billion-dollar projects that are scheduled to start construction in 2010, including projects owned by:

• BP Exploration (Canada), a unit of BP plc (NYSE:BP) (London, England)
• Conoco Phillips Canada, a unit of ConocoPhillips (NYSE:COP) (Houston, Texas)
• EnCana Corporation (NYSE:ECA) (Calgary, Alberta)
• Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas)
• Husky Energy Incorporated (OTC:HUSKF) (Calgary)
• MEG Energy (Calgary)
• Nexen Incorporated (NYSE:NXY) (Calgary)

"As the number of companies with an Alberta headquarters might suggest, the TIV of Canadian oil sands projects are expected to account for a significant portion--more than half--of all TIV for North American oil and gas production projects scheduled to start construction next year," Davis said. Spending on Canadian oil sands projects with a 2010 scheduled project start date has a TIV of $8.52 billion, he said, up from virtually nothing in 2009 and less than $2 billion in 2008. "A prolonged period of relatively high oil prices, coupled with strong support from the Canadian government, should enable several projects to move forward according to the scheduled start date," he said.

Click on image at right for details about Canadian oil sands spending, 2006-10.

Davis cautioned attendees that volatile oil prices and the continuing recession in the U.S. could cause some projects to be postponed. He noted that a number of projects with a 2010 scheduled start date had been delayed from their original 2008 or 2009 start dates. In fact, Industrial Info shows that 20 Canadian oil sands projects with a TIV of $23.8 billion have delayed or cancelled their 2010 construction start date.

"Back in mid-2008, when oil was selling at more than $100 per barrel, the Canadian oil sands industry got a little ahead of itself," Davis said. "Many new projects were announced. But over the last year or so, a lot of those big-ticket projects have been postponed or cancelled altogether. In some cases, delays were strictly based on project economics. But in other cases, delays were driven by a combination of economics, and concerns about water and the environmental impact of specific projects," Davis said.

Industrial Info Resources (IIR) is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy related markets. For more than 26 years, Industrial Info has provided plant and project opportunity databases, market forecasts, high resolution maps, and daily industry news.