Setting a new oil sands Horizon

Canadian Natural Resources is setting a new standard for its oil sands peers by beating both its timetable and budget for the first C$6.8 billion phase of the Horizon project.

The Calgary-based independent said it has a high degree of certainty on C$5.3 billion of the project’s total cost, including a C$700 million contingency fund.

To curb costs it is building parts of Horizon with its own mine equipment, avoiding the use of contractors, and is trimming other spending by flying skilled workers in from Quebec, New Brunswick and Newfoundland and will soon add flights from British Columbia to offset labor shortages as well as employing a mix of union and non-union workers on the site.

Some modules built in Edmonton

Canadian Natural said in its latest update that it expects to have up to 6,000 workers on the project by mid-2007, compared with 2,500 currently. Oil sands Senior Vice President Real Doucet said the company’s emphasis on “front-end engineering coupled with a well-defined execution strategy continues to deliver, allowing our project team to execute on a resource-constrained environment.”

But not all analysts are convinced that Canadian Natural has dodged the bullet.

Tom Ebbern at Tristone Capital and Martin Molyneaux at FirstEnergy Capital told the Financial Post that the sternest test won’t occur until the workforce reaches its peak and productivity becomes an issue.

Ebbern noted that the Long Lake project by Nexen and OPTI Canada had its toughest test in the last year of construction when costs climbed 10 percent above budget.

—Gary Park