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Providing coverage of Alaska and northern Canada's oil and gas industry
May 2008

Vol. 13, No. 19 Week of May 11, 2008

One the oil sands can’t ‘duck’

Dead birds in Syncrude Canada tailings pond stir international condemnation, industry contrition; incident derails Alberta’s campaign to clean up oil sands’ image; company’s noise-making devices to scare birds were absent due to spring snowstorm

Gary Park

For Petroleum News

Oil sands giant Syncrude Canada, the world leader in pumping out synthetic crude, said April 28 it is working on a 33 percent expansion to 400,000 barrels per day by 2012, planning to add 100,000 bpd in 2016 and now pondering an eventual goal of 700,000 bpd.

CPC Corp., a Taiwan-government owned refiner, said it’s ready to invest $788 million on an exploration and development venture in the oil sands over the next five years, adding its name to the stable of international players in northern Alberta.

Startup OPTI Canada said April 30 its 50-50 joint venture with Nexen has finished construction of an upgrader at the Long Lake site, dealing with the most economically volatile aspect of an oil sands project. Now the partnership is ready to ramp up to 50 percent of capacity by mid-2008 and achieve full volume of 72,000 bpd by late 2009.

Canadian Natural Resources said April 30 construction of its massive Horizon project was 94 percent complete by the end of March, putting it on track to hit full capacity at 110,000 bpd in the first quarter of 2009, with capital spending on Phase 1 at 111 percent of the original C$6.8 billion, or within the revised budget estimate.

So far so good for the oil sands business.

Ducks in tailing ponds

All it took was a misguided flock of ducks to wreck that flurry of positive news and undo the Alberta government’s efforts to burnish the somewhat soiled image of the resource.

What might have been gained from four days of upbeat announcements disappeared in the toxic sludge of Syncrude’s tailing ponds, an incident that garnered global attention from CNN, the New York Times, several European publications and an array of blogs, to name a few.

Publicity was once the fondest dream of oil sands promoters, as they struggled to convince investors they had the ability to extract crude oil from the tarry sands of northern Alberta and would one day become a critical element in North America’s long-term energy supplies.

Only they didn’t have in mind what occurred when word got out that 500 migrating ducks had met their end in a toxic water-based mixture of clay, sand, hydrocarbons and heavy metals, including mercury — the residue of a process used to flush oil from the extracted bitumen.

Normally, Syncrude deploys noise-making cannons to drive off waterfowl, but a spokesman for the consortium said the devices weren’t in place because of a spring snowstorm.

Tipster alerted government

Word that ducks had been caught in the sticky sludge apparently reached the Alberta government via an anonymous tipster. Syncrude said it was trying to assess the scope of the problem before contacting the government — an explanation that was scorned by environmentalists.

Despite all of the criticism and allegations aimed at the Syncrude consortium and other oil sands operators over the years for their use of water and natural gas, their role as a leading source of greenhouse gas emissions, and their scarring of the landscape, nothing has quite matched the furor caused by the dying ducks.

It has drawn a stinging rebuke from Canadian Prime Minister Stephen Harper and from Bruce March, chief executive officer of Imperial Oil, which owns 25 percent of Syncrude, making it the second largest stakeholder after the Canadian Oil Sands Trust at 36.74 percent. (The other partners are Petro-Canada 12 percent, ConocoPhillips 9.03 percent, Nexen 7.23 percent, Mocal Energy 5 percent and Murphy Oil 5 percent.)

Harper: international image harmed

Harper said the dead ducks have harmed Alberta’s and Canada’s international image.

“I’m not here to make any excuses for the particular event that occurred over the last few days,” he said in Edmonton. “It is a terrible event. It is not going to do anybody’s image any good.”

He said the Canadian and Alberta governments will cooperate to “make sure the industry fulfills both its existing obligations and any new obligations that we think are necessary.”

March, who has been Imperial CEO for just a month, said he was “deeply disappointed” by the events.

“It’s something that hasn’t happened in a very long time, but there are really no excuses. … We’re deeply upset and we will do all we can do to change work processes and change procedures to prevent it from occurring in the future.”

At the same time, March said that with 13 percent of the world’s known reserves in Alberta it is “simply unimaginable that the world’s energy needs can be met if these supplies are not included in the energy mix.”

He said that satisfying domestic and global demand, while protecting the environment, is the “most significant opportunity and challenge facing the industry and Imperial.”

Syncrude apologizes

Tom Katinas, president and chief executive officer of Syncrude, issued a contrite statement saying the consortium offered a “heartfelt and sincere apology for the incident.”

“We understand you expect the best from Syncrude in environmental management and the protection of wildlife,” he said.

“It’s a value that we share and we are committed to making the necessary changes to our long-established practices to help ensure a sad event like this never happens again.”

But, as Harper and March indirectly conceded, the oil sands sector is faced with even more of an uphill struggle to sell its message of land reclamation efforts, lowered greenhouse gas emissions per unit of production, and reduced water and natural gas consumption.

Timing bad for Alberta

The timing could scarcely have been worse for the Alberta government of Premier Ed Stelmach, coming just a week after it announced a three-year, C$25 million campaign to challenge the myths and misrepresentations being spread by critics of the oil sands.

Deputy Premier Ron Stevens had just spent four days in Washington, D.C., making a case to U.S. industry and lawmakers that output from the oil sands is a vital component of U.S. energy security.

He said the world will “need oil and gas for the foreseeable future, regardless of how much effort is put into developing alternatives.”

In particular, Stevens was attempting to gain an exemption for the oil sands from U.S. legislation adopted in December that bans the use by U.S. military and federal agencies of fuels that generate more greenhouse gas emissions than conventional sources.

He said progress was made on that front, but “the battle is not over.”

The scope of the battle may just be unfolding, as more activist shareholder groups challenge the role of multinationals in the oil sands.

A coalition of 11 U.S. and United Kingdom investors, including Boston Common Asset Management, called BP’s move into the oil sands last December a “disturbing step backwards” for a company that promoted itself as the environmental pacesetter in the global industry.

Lauren Compere, director of shareholder advocacy at Boston Common, which has $1 billion under management and holds 354,000 BP shares, said BP made a mistake because the technology does not exist to exploit the oil sands without harming the environment.

Trillium Asset Management, which also has $1 billion under management, will support a proposal at ConocoPhillips May 14 annual meeting requiring the firm to report on the expected environmental damage from its various oil sands operations and the consequences of stopping that process.

Green Century Capital will take a similar tack at Chevron’s annual meeting on May 28 as that company presses ahead with its Ells River and Athabasca projects.

Biofuels and oil sands incompatible?

Larry Burns, vice president of research and development at General Motors, added a disturbing note for the industry by asking whether it made sense for governments to legislate the use of biofuels, while supporting oil sands expansion.

“I’m not saying it’s right or wrong … but I think it’s a pretty bizarre way to get gasoline to a corner station,” he told the Financial Post. “It’s an awful lot of capital and an awful lot of work to pull it off.”

Under full siege, Alberta government leaders made soothing noises about conducting a full investigation, with Sustainable Resources Minister Ted Morton taking the toughest line in declaring that “if there is negligence (on Syncrude’s part) there will be prosecution.”

But Tom Olsen, a spokesman for Stelmach, caused a few heads to spin when he said the premier welcomed the attention generated by the dead ducks “because what this allows him and Alberta to do is demonstrate to the world how seriously we take an incident like this.”






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