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Oilsands mining future bright, says earthmoving contractor

A company that specializes in civil construction on oilsands mining projects says it is confident its customers will continue to build despite the steep and sudden decline in world oil prices of the past six months.

However, president and chief executive Martin Ferron also pointed out that Edmonton-based North American Energy Partners Inc. is under pressure by customers who have asked it to find ways to reduce its fees.

And he reported that Calgary oilsands producer Canadian Natural Resources Ltd. took over its overburden removal contract at its Horizon oilsands mine last month, buying its equipment for a net $36.3 million but removing an estimated $80 million per year (at 12 per cent profit margin) in future revenue.

“With the recent significant decline in the price of oil, the very viability of oilsands mining seemed to come into question,” said Ferron on a conference call Wednesday.

“However, our customers’ reaction to this challenging situation should reduce those concerns. They have clearly demonstrated they are committed to their oilsands mining projects.”

The Canadian Natural move was allowed under its agreement with North American, said CNRL spokeswoman Julie Woo in an e-mail, refusing further comment. Last month, Canadian Natural reduced its 2015 capital budget by $2.4 billion.

Ferron said the companies are still negotiating about the labour part of the contract.

Mining projects have lives of 40 years or more and are planned for years, making cancellations due to short-term commodity price fluctuations impractical, he pointed out. He added the low value of the Canadian dollar is helping producers who sell their oil in U.S. dollars.

Ferron said the commitment of partners Suncor Energy Inc., Total E&P Canada and Teck Resources Ltd. to their $13.5-billion Fort Hills oilsands mine is particularly heartening. First oil is expected in 2017, eventually ramping up to 180,000 barrels per day.

North American has been “trying to be part of the solution” for customers who have been in cost-cutting mode for 30 months, said Ferron, adding it is passing on cost savings it is seeing due to reduced activity in the Fort McMurray area.

The company said revenue in 2014 was $472 million, little changed from $470 million in 2013, and its gross profit was $51 million, up from $46 million, as its gross profit margin jumped to 10.9 per cent from 9.7 per cent.

It recorded a net loss from continuing operations of about $700,000 in 2014, compared with a loss of $18 million in 2013.

Analyst Maxim Sytchev of Dundee Capital Markets said in a note that North American’s adjusted earnings in the fourth quarter beat consensus but were behind his estimates.

“Oilsands mining projects are not going anywhere given the cash operating costs in $30-$45 per barrel range,” he wrote.

“Sentiment is very poor but we believe we are going to end up with higher WTI at year-end versus now, abating some of the concerns while also highlighting that existing oilsands mining operations continue to produce. NOA has the balance sheet and the management team to muddle through during the lull.”

The company’s stock closed at $3.79, down six cents on Wednesday. It has varied between $3.20 and $9.22 in the past year.

Calgary Herald



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