The Canadian Oilsands and Strategic Approaches to Profitability
The Canadian oilsands resource has gone from being touted as energy security for North America to being derided as an energy-intensive form of oil extraction with no long-term future. New investment has been affected by the emergence of other unconventional oil sources, particularly light tight oil (LTO) in the United States. Environmental concerns have also weighed on the debate about the future of the oilsands. Compounding the threat, pipeline capacity has not kept pace with the growth in oilsands production, increasing the discount on Canadian oil relative to global benchmarks and applying downward pressure on operating profits.
The focus of this Energy Insight will be on the levers within the control of oilsands firms, and how effectively they have been deployed to sustain profitability during this turbulent period. From a firm perspective, the oilsands industry largely remained profitable during the oil price collapse and moderate recovery. Strategies adopted by the companies to remain profitable include cost leadership, vertical integration or a combination of both. The data suggest that under a low price environment, cost leadership is the best strategy for oilsands segments to turn a profit, while vertical integration offered an opportunity for the wider company to remain profitable in all business environments, even if the oilsands segment incurred losses.