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Petro-Canada, a new player on Alaska’s North Slope, embarks on C$5.8 billion oil sands expansion in Alberta Integrated company relies on new technology, declares intention to become a “major player” in the oil sands; says project is profitable with oil at $16 a barrel Gary Park PNA Canadian Correspondent
Go big or go home is the motto in Alberta’s sprawling oil sands region and Petro-Canada has opted for big, announcing it will spend C$5.8 billion over 10 years as it pursues alternatives to depleting reserves of conventional crude in Western Canada. Petro-Canada is a new player on Alaska’s North Slope, having won 56 tracts at the North Slope Foothills areawide oil and gas lease sale in Anchorage May 9.
The company’s oil sands package, filed with the Alberta Energy and Utilities Board, includes a new project expected to yield up to 80,000 barrels per day by 2007 and the conversion of the company’s Edmonton-area refinery to process up to 170,000 barrels per day of bitumen into low-sulfur gasoline.
For Petro-Canada, the objective is stable earnings and cash flow by having total control over the operation from extraction, to upgrading to distribution of the products through its coast-to-coast chain of gasoline stations.
“This combination of low-cost efficient operations, leveraging high-quality assets within an integrated value chain, will provide Petro-Canada with a long-term competitive advantage in the oil sands,” Brant Sangster, vice-president of oil sands, told analysts in a conference call Dec. 4.
Petro-Canada’s chief executive officer Ron Brenneman said the projects will “establish Petro-Canada as a major player in Alberta’s oil sands development.
“Ultimately, we intend to have a large-scale fully-integrated oil sands business that takes our bitumen production, transports it to our Edmonton refinery for processing into finished product and distributes it through our marketing network.”
He said the “long-term future” of Western Canada’s oil industry is in the oil sands, which are estimated to have 315 billion barrels of recoverable reserves and total reserves of 1.7 trillion barrels.
Company’s first big move into oil sands For Petro-Canada, the announcement signals the integrated company’s first big move into the oil sands, although it is already a 12 percent partner in the Syncrude Canada Ltd. consortium, the world’s largest producer of synthetic crude, and is less than a year away from opening its C$290 million MacKay River project, which will yield 30,000 barrels per day. Nexen Inc. holds a 25 percent stake in the MacKay lease.
As one of several companies which have unveiled more than C$50 billion worth of oil sands projects in the past couple of years, Petro-Canada said it will build a new 80,000-barrel-per-day plant at its Meadow Creek lease in northeastern Alberta at a cost of about C$800 million.
Brenneman said a second phase could double production and be profitable even if global prices fall to US$16 per barrel.
The company has calculated it will create jobs for about 2,500 workers over the next 10 years to refit its refinery and about 550 jobs over the next five years to build its meadow Creek project. In the end, about 370 permanent jobs will be provided.
“We’re taking a deliberate staged approach here,” Brenneman said. “Our objective is to ensure that we have the lowest cost, most competitive facilities possible.”
He said Petro-Canada does not expect to see the same heavy cost overruns experienced by Suncor Energy Inc. and Shell Canada Ltd., which are nearing completion of projects that will add about 270,000 barrels per day to overall oil sands production.
Brenneman said the labor shortages that hit Suncor and Shell should not be an issue for Petro-Canada, which will start construction as other projects are winding down.
A Petro-Canada spokeswoman said that “regardless of current dips and valleys in commodity prices, we’re very optimistic this project will add real value in the long term.”
Plan combines different technologies Steve Calderwood, an analyst with Salman Partners Inc., said Petro-Canada’s plan is “one of the best, if not the best heavy oil strategies,” combining different technologies used by its competitors.
Unlike Syncrude and Suncor, the oil sands pioneers which use truck-and-bucket approaches to mine the bitumen, Petro-Canada will use the evolving steam-assisted gravity drainage technology, which pumps steam into deep deposits to heat up the crude, allowing it to flow into nearby wells.
“If you compare them all fairly in terms of when they are to start, I think this Petro-Canada plan would be far better than either Syncrude or Suncor. Mining, in many respects, has reached a technological plateau. The advancements in SAGD are likely to be significant,” said Calderwood.
Scotia Capital analyst Duncan Matheson said the announcement establishes that the “economics of expanding oil sands opportunities are still excellent,” despite the 15 percent cost overruns by Suncor Energy and Shell Canada in projects that are nearing completion.
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