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Imperial riding out storm While peer companies head for shelter in Alberta oil sands plans, Imperial shows no signs of quitting on Kearl project Gary Park For Petroleum News
To each its own, as companies set their own courses through choppy waters in Alberta, but it’s probably a source of some industrywide comfort when Imperial Oil decides to keep a firm hand on the tiller.
If anything, Canada’s largest integrated oil company, 70 percent owned by ExxonMobil, traditionally infuriates the outside world by its painstaking deliberations, often designed to squeeze the last available dollar out of the public purse.
Slow progress on the Mackenzie Gas Project has been blamed by many on Imperial’s ponderous style.
Thus, it comes as something of a surprise when the company, against a noisy background of oil sands budget and program chopping, says it is pressing ahead with its C$8 billion Kearl project — a joint venture with sister company ExxonMobil Canada — in anticipation of final corporate sanctioning early in 2009.
So far, C$400 million has been spent on preliminary design and engineering, along with related road and site work. Kearl is targeting 300,000 barrels per day, coming onstream at 100,000 bpd.
Kearl ‘advantaged resource’ David Rosenthal, ExxonMobil’s vice president of investor relations, told analysts the project is an “advantaged resource” in the oil sands region “mainly because of the quality of that resource and the scale of it.”
“As we look at the economics of Kearl going forward, it continues to look like a robust project for us,” he said, suggesting that delays to other oil sands ventures may lower capital costs and improve Kearl’s economics.
An Imperial spokesman told reporters that doesn’t automatically translate into a 2009 spending commitment.
He said the capital program will be disclosed when Imperial releases in annual report for 2008 — a corporate idiosyncrasy that sets Imperial apart from its peers, who all issued separate releases on their cap-ex plans.
“From where we sit, given our long-term investment view, we have a strong balance sheet and we see some promising projects on the books,” spokesman Gordon Wong told the Calgary Herald. “We realize we’re in a commodity business and we realize there are up cycles and down cycles.”
Chief Executive Officer Bruce March said in a statement that Imperial’s strong balance sheet — helped by second-quarter earnings of C$1.4 billion — accompanied by its “long-term approach to disciplined investment and operational excellence is a proven combination.”
Recently, that has allowed Imperial to advance its major projects while keeping a “solid financial footing during these unsettling economic times,” he said, pulling a page right out of Imperial’s playbook.
Nervous shuffling among peers While company executives said ExxonMobil (serving as the voice for Imperial) is sticking to its five-year spending plan and its cautious valuation of projects (none of which rely on oil prices above $100 per barrel), there was still plenty of nervous shuffling among Imperial’s oil sands peers.
Others who have moved into the slow lane over the past week include:
• Royal Dutch Shell, which has put on hold plans for a 100,000 bpd expansion of its oil sands mining operations until front-end costs come down, although it remains on track for a 2010-11 startup of its initial 100,000 bpd expansion, in addition to the gross 130,000 bpd coming from the Athabasca project
“Clearly, there is significant industry inflation and a tight labor market in the Alberta area,” said Chief Executive Officer Jeroen van der Veer. “We are not immune from this.”
In such a difficult environment, Shell has stalled a decision on the expansion phase that was early set for the second quarter of 2009.
“We will wait for costs to cool down in Alberta before any new investment decisions,” he said predicting that “if you wait, the market will cool down.”
Second phase in billions While declining to estimate how much the second-phase might have cost, van der Veer said it would have run to billions of dollars.
Shell currently holds regulatory approvals for an eventual 470,000 bpd at Athabasca and has applied for another 300,000 bpd — applications it intends to pursue, along with plans for a possible 400,000 bpd addition to its Scotford upgrader at Edmonton.
• Canadian Oil Sands Trust, or COST, the largest owner in the Syncrude Canada consortium with a 37 percent stake, said the world’s largest producer of synthetic crude is reassessing plans to raise output well beyond the 500,000 bpd covered by its fourth-stage expansion
It said the objective is to develop a plan that maintains an appropriate resource life based on an independent estimate of Syncrude’s reserves and resources at the end of 2007.
COST Chief Executive Officer Marcel Coutu said that should bank facilities or debt markets not be available to fund the trust’s mid-2009 debt maturities of C$500 million, there might have to be cuts in cash distributions to shareholders on top of a 40 percent reduction to the quarterly payout of 75 cents per unit on November 14.
Syncrude operation ‘sound’
He said the Syncrude operation is “sound and strong” despite the deterioration in economic conditions, but a debottlenecking to add 50,000 bpd, might be delayed beyond the current 2012 project startup and work on other expansion phases could be slowed.
• Marathon Oil said its budget-slashing for 2009 could affect plans to spend US$1.9 billion raising capacity at its Detroit refinery to 115,000 bpd from 100,000 bpd and expand its ability to process more oil sands crude from Alberta.
The company said it is reviewing the scheduled completion date of late 2010 and expects that will result in a deferral “due to the current market conditions.”
• Also on the downstream end, TransCanada is taking a hard look at the timing of its 590,000 bpd Keystone pipeline from the oil sands to Oklahoma, with a second phase to deliver 500,000 bpd to the U.S. Gulf Coast.
Keystone could be delayed Now that ConocoPhillips has scaled back its stake to 20 percent from 50 percent, TransCanada Chief Executive Officer Hal Kvisle said there might be delays in the Keystone timetable, due to start shipments in 2012, particularly the second stage.
While welcoming the chance to own more of Keystone, he said his company recognizes it faces a financing challenge, even though it has shipping commitments for 1 million barrels per day of the ultimate capacity of 1.1 million bpd.
“If there is room for some kind of deferral on some of the construction, that’s probably a good thing for all of us,” Kvisle said. “But I would remind all that the commitments we received are binding and they are long term — 17 to 20 years. It’s one of the best contracted oil pipelines anywhere in North America.”
However, there are uncertainties in the oil sands upstream “and we need to be very careful about that,” he said, adding he was not worried about cancellations, although “longer term expansion volumes are a little more of a question mark.”
He pledged to work with shippers to ensure there is enough capacity to support continuing oil sands production growth.
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