Husky Energy is causing some serious head-scratching among its peers and analysts as it gears up for initial production from its Tucker oil sands operation — a project completed on time and, more significantly, under budget.
The first barrel of oil is expected in November, formally launching a 35-year operating life that will have peak output of 30,000 barrels per day and total production of 350 million barrels.
It turns Husky into a fully integrated oil sands player, employing its production, upgrading and marketing elements.
The final costs are estimated at C$470 million, beating the original budget by C$30 million — an apparent mystery to analysts who quizzed John Lau during a conference call to squeeze an answer from the Husky chief executive officer.
Lau, who suggested that the capital costs of C$15,000 per flowing barrel “is the lowest ever” in the oil sands, coyly attributed the success to project management.
“We carried out detailed front-end engineering,” he said. “That was the first step. We have a very good execution team.”
He could afford to be understated when rival companies are being swamped by spiraling costs.
Shell Canada warned during the summer that the next phase of its expansion could overshoot forecasts by 75 percent.
Husky moving ahead with Sunrise
Husky is wasting no time taking advantage of whatever skills it has accumulated by pressing ahead with front-end engineering design — due to be completed within a year — for its Sunrise project which is intended to recover 3.2 billion barrels after coming on stream in 2010-2012, grow to 200,000 bpd by 2014 and potentially expand to 300,000 bpd.
To take even greater cost control of Sunrise — although a formal estimate has yet to be released — Husky is contemplating building its own drilling and completion rigs.
It is expected to announce later this year where it will process the raw bitumen into synthetic crude, indicating it may locate the plant in the United States or Asia to avoid Alberta’s high construction costs.
Lau has said Husky will likely form a joint venture with a major U.S. company, which could bring BP or Marathon into the picture.
Andrew Potter, an analyst with UBS in Calgary, said he believes that like the recent EnCana-ConocoPhillips joint production/upgrading venture, Husky’s “downstream solution will offer robust economics versus the majority of Alberta’s oil sands projects.”
Company also working on Saleski, Caribou
Not content to confine itself to Sunrise, Husky is also working on the best bitumen recovery process for its Saleski and Caribou leases.
Its Saleski holdings now cover 240,000 acres and 24.1 billion barrels of original oil in place, while at Caribou, 44 well locations have been identified for a winter program.
While Husky pushes ahead, other operators seem to be at odds over the economic threshold for oil sands development.
Shell Canada Chief Executive Officer Clive Mather believes the expansion of his company’s Athabasca facility would be viable with oil prices at only US$30 per barrel.
But Nexen counterpart Charlie Fischer put the break-even point at US$45 per barrel because of the scramble to find construction labor, equipment and materials.
