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Providing coverage of Alaska and northern Canada's oil and gas industry
July 2009

Vol. 14, No. 29 Week of July 19, 2009

Dirt again rising at oil sands site

Connacher Oil and Gas has resumed construction at a second steam-driven oil sands project in the Great Divide region of northeastern Alberta, seven months after suspending work because of slumping oil prices and tight credit markets.

Having successfully completed a C$200 million debt offering a month ago, Connacher said the C$350 million, 10,000 barrel per day Algar project is back on track. So far, C$150 million has been invested, mostly for off-site fabrication of plant components and equipment.

Construction is scheduled for completion by late 2010 as Connacher achieves another milestone on the way to its targeted 50,000 bpd by 2015.

The company said recent operating costs have slipped under C$15 per barrel and increased volumes would contribute to further reductions.

It said the wave of project cancellations or deferrals in the oil sands region may have lowered the costs of labor, services and equipment.

Analyst Lanny Pendill said the fact that such a small company (Connacher has so far produced 3.3 million barrels at 8,000 bpd from its initial phase) was able to secure financing is a sign that capital markets are loosening up.

He said the partial recovery in oil costs and lower capital costs has put the oil sands sector “pretty much on the cusp,” bolstered by Imperial Oil’s decision to go ahead with its C$8 billion Kearl project.

The threshold for reviving projects is confidence that oil prices will not drop much below US$60 per barrel.

William Lacey, an analyst with FirstEnergy Capital, said there are strong indications that debt markets have opened up again, with Talisman Energy, Husky Energy and Canadian Oil Sands Trust all raising debt under 8 percent.

—Gary Park






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