The operational cost of extracting bitumen from Canada's oil sands tops out at $37 per barrel for in-situ projects and $40 per barrel for mining projects according to Wood Mackenzie's latest analysis.Callan McMahon, principal analyst for Wood Mackenzie, says this is amongst the highest of all project types globally. "With low oil prices, the oil sands region's cash flows will fall by $21 billion in 2015 and 2016 combined," he adds.

Wood Mackenzie forecasts that capital spend in the region will fall by $1.5 billion over the next two years (4% from Q4 2014 assumptions), but it sees limited impact on production.

"Even if projects temporarily operate at a loss, shut-ins are not expected; and with the costs sunk, projects totalling 458,000 b/d of bitumen are set to start production in 2015 - 2016," explains McMahon.

In addition, the analysis highlights that decreased investment will show post-2017, and the 4.0 million b/d peak bitumen production previously expected in 2020 by Wood Mackenzie has now been pushed out to 2024.

The following are other key considerations from Wood Mackenzie's latest key play analysis:

The oil sands remain viable long-term: An average point forward breakeven for an onstream in-situ project is $41 per barrel and the average point forward breakeven for an onstream mine is $47 per barrel (WTI indexed), but full-cycle breakevens can exceed US$100 per barrel for both project types.

Larger and diversified companies better positioned to weather the storm: Imperial, CNRL, Suncor and Shell each still hold over $20 billion in post-tax remaining NPV10 in the region.

The price impact on value is massive: To date, over $35 billion of value has evaporated from the region. And, if prices stay low, at a $60 per barrel real flat price deck, we calculate that another $121 billion could be at risk, which equals with the Eagle Ford Shale's remaining value.

Companies looking for the exit might find limited options: The large amount of investment made in the past decade by the potential suitors and the unique expertise required to successfully develop this high cost resource are both significant headwinds.
Source: Wood Mackenzie