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Montana refinery expansion stalled
Gary Park For Petroleum News
Turmoil in financial markets has produced another casualty in the oil sands-related upgrading/refinery sector, with Connacher Oil and Gas shelving a $500 million plan to boost capacity at its Montana plant to 35,000 barrels per day from 9,500 bpd.
The Calgary-based producer tied its decision to “weak overall economic conditions and the volatile and uncertain state of both capital and credit markets,” along with other expansions of U.S. heavy oil pipelines and upgrading plants in both the U.S. and Canada.
It said those moves have “greatly increased North American demand for Canadian heavy oil and bitumen, thereby reducing heavy oil discounts and contributing to the ongoing improvement of Connacher’s upstream bitumen netbacks.”
Connacher said the narrowing of price differentials between light and heavy oils is expected to continue for some time because many new or anticipated oil sands projects are behind schedule, have been shelved or are operating below capacity.
As a result, Connacher no longer needs to invest in expanding its heavy oil capacity at its Great Falls facility, which was purchased in April 2006 from Holly Corp. for $55 million.
An ultra-low sulfur diesel project at the Montana refinery is nearing completion and should come onstream in January.
The company said it is participating in the higher bitumen netbacks by selling all of its diluted bitumen production from its 10,000 bpd Algar project within its 100 percent-owned Great Divide lease in Alberta into North American oil markets and expects to extend that practice into the future.
Final decision delayed But, until capital markets stabilize, it has delayed a final decision on a “longer-term” pipeline alternative from the Algar operation and will continue to truck its diluted bitumen to market.
It is also awaiting Alberta government and other approvals for a second 10,000 bpd project. As well, it owns conventional properties producing up to 3,600 bpd of oil equivalent in Alberta and Saskatchewan.
In the midst of slumping oil prices, Connacher said that so long as there was not a “serious decline in oil prices triggered by a deep economic downturn” its programs and projects should result in systematic growth of operational and financial results in the 2008-10 period.
The company said its management would present a “very conservative, self-reliant financial and operating plan and capital budget” in mid-November when the board reviews 2008 results and a strategy for 2009.
Connacher said it has C$33 million available to its December interest payment to note holders, has unrestricted cash balances of C$208 million and has unused bank lines of credit of C$187 million, or a total of C$395 million to complete Algar which has been budgeted at C$375 million.
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