Edinburgh-Scotland-based Wood Mackenzie, in its report, "The Cost of Playing in the Oil Sands," says despite high land prices, the cost of acquiring acreage is small compared to the investment required for commercial development.
Last year, many of the top players in the oil sands sector either announced changes to their plans or reported cost increase, leading to "an average rise in capex per peak flowing barrel over the year of 32 percent for integrated mining projects and 26 percent for in-situ developments. Since 2005, overall costs per peak flowing barrel have increased by around 55," Wood Mackenzie said in a statement.
"Marginal economics have always been a concern for companies operating in the oil sands, breakeven prices are high and rates of return relatively low in comparison with conventional projects, particularly for mining projects," said Conor Bint, Upstream Research Analyst - Canada and Alaska for Wood Mackenzie.
The firm said mining projects had an average breakeven price of $28/bbl and IRR of 16 percent; rates of return were more favorable at the less capital-intensive in-situ projects, averaging around 22 percent, Wood Mackenzie said.
The report attributed much of the increase in costs to labor shortages and an increase in material costs.