|
Billions bet on sands CNQ, EnCana unveil sweeping oil sands schemes, each aiming for 500,000 bpd By Gary Park Petroleum News Canadian Contributing Writer
Canadian Natural Resources and EnCana have smothered any thoughts that the Alberta oil sands might start running out of steam by unveiling two of the most ambitious programs.
CNQ (as Canadian Natural is known because of its stock symbol) is shooting for 497,000 barrels per day by 2015, with no declines for the following 30 to 40 years. Combined with the Calgary-based independent’s C$10.8 billion Horizon project, which is now under construction, the slate of new undertakings would bring the company’s total commitment to the oil sands to an estimated C$30 billion to C$35 billion. That’s more than CNQ’s current market value.
EnCana, North America’s largest gas producer and its pacesetter in unconventional plays, weighed in Nov. 7 with the big independent’s own high-flying goals.
Chief Operating Officer Randy Eresman (who succeeds Gwyn Morgan as chief executive officer on Jan. 1) said EnCana is projecting 500,000 bpd by 2015, 300,000 bpd more than its earlier outlook, and is expecting to spend C$12.5 billion on initial and sustaining capital over the 25-30 year life of the projects as it taps into estimated recoverable oil in place of 5.2 billion to 10.5 billion barrels.
Morgan told an investor conference that the oil sands strategy, in harness with the existing gas resource plays, reinforces EnCana’s view that onshore North America’s conventional opportunities are tired, small, difficult to find and costly to develop.
Eresman was emphatic that multiple alternatives will make the oil sands a “very significant part of our future growth,” which is targeted at 15-20 percent growth in oil and natural gas liquids output by 2009. EnCana open to partners But, unlike its gas sector, EnCana is open to taking on partners after receiving several unsolicited inquiries from other unidentified “major multinationals, integrated producers and national oil companies” eager to enter the oil sands, the company said.
It is weighing the possibility of equity investments, farm-ins, asset swaps, long-term bitumen supply agreements and the integration of upstream and downstream assets opening the way to “low-cost market development solutions” to make it more than a pure bitumen producer.
Those prospects could explain a flurry of rumors in October that Royal Dutch Shell was preparing a takeover bid for EnCana, forcing EnCana to issue a denial that it was in any takeover discussions.
EnCana’s heavy oil sands concentration is in the in-situ development areas of northeastern Alberta, where steam is injected to melt deep bitumen deposits, allowing them to flow to the surface.
Its grand plan is to achieve production of 250,000 bpd at Christina Lake (currently 7,000 bpd), 150,000 bpd at Foster Creek (currently 30,000 bpd) and 100,000 bpd at a newly identified Borealis project. CNQ accelerating Horizon Affirming its confidence in the oil sands, CNQ is accelerating construction of Horizon’s initial phase, moving C$400 million from its 2007 capital budget to 2006, targeting 110,000 bpd in 2008.
From there, company Chairman Allan Markin said phases two and three will be combined to push output to 232,000 bpd by 2011, a year earlier than originally planned.
Now two more phases are in the works, although they have yet to get final ratification by the board of directors.
But Markin said the goal is to add a further 265,000 bpd, giving Horizon total synthetic crude production of 497,000 bpd by 2015 at a cost of at least C$12.3 billion.
Also being scoped are plans to:
• Build a C$6 billion upgrader at Primrose near Cold Lake in northeastern Alberta to turn bitumen into synthetic crude, starting at 125,000 bpd in 2012 and growing over the next three years to 175,000 bpd.
Chief Operating Officer Steve Laut said an upgrader is the “next logical step” in CNQ’s oil sands portfolio, allowing it to capture C$9.50 per barrel and achieve a production cost of C$27 per barrel at the plant gate.
• Add another 240,000 bpd to the 120,000 bpd project now under development at Primrose. CNQ is in the preliminary stages of another eight thermal projects of 30,000 bpd each by 2018-2020 at a cost of C$4.8 billion.
Unlike the open-pit mining of bitumen at Horizon, Primrose is an in-situ project that pumps steam to melt deep bitumen deposits, forcing them to the surface.
• Construct a C$1.4 billion gasification facility to apply new technology and generate synthetic gas, lowering reliance on costly natural gas as a heat source for oil sands extraction and processing. CNQ hopes to bring the first of three phases on line in 2013 and eliminate the need for 200 million cubic feet per day of natural gas at Horizon. Investors impressed Investors were impressed, sending CNQ shares soaring by 10 percent on the day of the announcement, while many analysts dug into their bag of superlatives.
Garey Aitken, vice president of Bissett Investment Management, noted that CNQ started from scratch in 1989 and is now tackling projects on an “enormous scale.”
Martin Molyneaux, an analyst at FirstEnergy Capital, told the Financial Post that the numbers are “gargantuan … it’s hard to put into perspective.”
Alastair Dunn, a senior money manager at Connor Clark & Lunn Investment Management, said CNQ has a record of achieving its goals and the market is now “giving them the benefit of the doubt.”
But Laut agreed with those who raised concerns about the financial risks, especially the history of budget overruns in the oil sands running to billions of dollars.
He said the challenge facing today’s projects is to attract high-quality labor and it will be an “even bigger issue going forward.”
By unveiling its long-term program, CNQ can offer secure jobs to the skilled workers already hired for Horizon, he said.
However, Laut voiced confidence that, so long as oil remains above US$28 per barrel, the plan can be covered from cash flow, without any need to issue new shares or take on debt.
He said CNQ has “balance sheet strength” at US$28 oil to undertake the expansion and still have room to take advantage of other opportunities.
“We have the assets, the people and the balance sheet,” Laut said. “Our history is that we usually follow through.” Doubling up order of the day It’s not just Canadian Natural Resources and EnCana that are raising the bar in northern Alberta.
Petro-Canada and its junior partners have decided to double initial production from their Fort Hills project, while Devon Energy is evaluating acres west of its Jackfish site with the thought of doubling its output by 2010.
Fort Hills has received approval from the Alberta Energy Department to amend its development plan and produce 100,000 barrels per day by 2011, rather than 50,000 bpd in 2009.
That will make it economically feasible to build an upgrader to turn mined bitumen into synthetic crude oil and avoid the deep price discounts that have hit other producers selling bitumen and heavy oil into an open market.
A decision will be made in the first quarter of 2006 on whether to locate the upgrader near the Fort Hills mines or in the Edmonton refinery district.
UTS Energy, which holds a 30 percent stake in Fort Hills, said the budget for the overall project has now climbed to between C$4 billion and C$6 billion. A year ago the forecast price tag was C$1.5 billion-$2 billion.
Operator Petro-Canada, which owns 55 percent, is counting on a more conservative budget of C$4 billion-$5 billion. The third partner is Teck Cominco, with a 15 percent stake.
Meanwhile, Devon said it has drilled preliminary wells and started construction of its Jackfish steam-assisted gravity drainage project, due to produce its first oil in 2008 and peak at 35,000 bpd from a reserve base of 300 million barrel.
Devon President John Richels told a conference call Nov. 1 that acreage west of Jackfish could yield an additional 35,000 bpd by 2010 based on test wells.
| 