Thank you very much for giving us the opportunity to speak to you today.
I have a few comments on Nexen. We're a $20-billion worldwide energy company. We operate in roughly half a dozen countries in the world. We've been involved in the oil sands for several decades, and currently we are investing, together with a joint venture partner, $4.6 billion in bringing in an oil sands plant on stream later this year.
I want to make three or four points.
The first point is that investment thrives on consistency and stability. Investment returns in the oil sands today are in the mid-teens, and despite higher oil prices, margins and returns on these new investments have been eroded largely by higher input costs. This has already happened. And if you look forward, prices in the oil sector have dropped roughly 20% from the peaks we saw last summer. We appear to be facing an area where we'll have new environmental obligations to meet, which are uncertain. We're undertaking a royalty review, which may pose an additional burden on the sector, and collective agreements in the building trades area are up for renegotiation this spring. This is not really a great, conducive environment to be further tinkering with the economic system, and this is not conducive for the big investments that have to be made.
If you look at some of the policy reasons that ACCA was originally put in place back in the mid-1990s, it was to recognize the very substantial investments that are made in these large mining and oil sands businesses. It was also to recognize the large single-event risk that occurs when these investments are made. If you've read the newspapers over the last five years, these single-event risks have been substantial. It is unfortunately more common to read about cost overruns in oil sands plant development than it is to read the reverse of that. So this is not a business that can handle an infinite amount of tinkering and additional obligations put onto it.
The second point I'd like to make is the comment on subsidies. First of all, we deduct our actual cost, both capital and operating, in running this business, just like any other industry. The structure of the oil sands business and its tax and royalty regime is similar to what you find in many international jurisdictions. It is also consistent with the theme of big capital investments moving forward and the requirement to earn a return.
There is also a natural structure here, with oil and gas organizations having higher embedded costs of capital than governments. So from a financial point of view, it makes eminent sense to move these projects forward, to have oil and gas companies get their returns in the earlier period, and governments, with their lower cost of capital, get their returns during a later, after-payout period. They also get spinoff benefits, annuity benefits, and a future tax base from which economies are built.
There has been much said about the large absolute dollar profits in our industries, but nobody remembers the very substantial investments that are made. In many ways, these large profits are related to the size of the industry as opposed to high rates of return. This is no more complicated than, if you go to the bank and put in $1,000, you would expect to make a higher absolute earning on that than if you went and put $100 into the bank. These returns have to be put in the context of the investments that are being made.
The oil sands today, at current production rates, have roughly a 500,000-year resource life index. This is not an over-invested sector. Typical in our industry would be five to fifteen years. If we look at the period of time we've been at the oil sands, we had a large plant go in 40 years ago—and that was Suncor. Syncrude went in approximately 30 years ago. Shell went in a few years ago. As well, we have a number of smaller projects. But we have been working hard over a long period of time to bring this resource to market.
If you look at what brings innovation into our sector, it is, number one, an enhanced economic outcome. It is a robust, consistent, and supportive investment environment. Capital is among the most portable commodities in the world, and commercial organizations have many choices worldwide.
Canada has a chance to be a worldwide leader in sustainable, economic, and environmentally supportive oil sands development, and we need to support it.