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Oil sands project on time and on budget Nexen, OPTI Canada joint-venture confident they can avoid cost overrun pitfalls of other oil sands peers Gary Park Petroleum News Calgary Correspondent
Nexen and OPTI Canada are delivering a bold promise to their shareholders — they are on schedule and on budget with their C$3.4 billion Long Lake oil sands project in Alberta.
By maintaining tough controls over all aspects of the project and employing a new construction approach they hope to end a succession of cost overruns that have hammered all of their bigger oil sands rivals — Syncrude Canada, Suncor Energy and Shell Canada.
A key shift in strategy has seen the joint venture partners assemble the component parts in modules at Edmonton plants rather than on location in the Fort McMurray area, and then transport the pieces over almost 300 miles by giant trucks.
Nexen and OPTI also broke with the tradition of awarding project management to engineering contractors, by putting their own employees into supervisory roles within the engineering firms working on Long Lake.
Currently 500 people are employed on the project and those numbers will grow over the rest of 2004.
The C$3.4 billion front-end cost estimate is unchanged after orders have been placed for about 80 percent of the equipment for the bitumen production system and 50 percent of the upgrader plant. More money may be needed for drilling Nexen Chief Financial Officer Marvin Romanow told a conference call with analysts that more money may be needed to drill the wells needed to achieve the bitumen output target of 72,000 barrels per day by the mid-2007 start-up date. (The raw bitumen will be converted into 58,500 bpd of premium sweet synthetic crude and other products.)
But he said that should not result in a significant overrun because the wells account for only 7 percent of the project’s total cost.
Module fabrication is scheduled to start late this year, followed by above-ground mechanical construction in the first half of 2005, while commercial drilling will start this fall and continue through 2005.
Using a new process that eliminates the need for natural gas to upgrade raw bitumen into refinery-ready crude, Long Lake is budgeted to hold operating costs to C$6 per barrel, about half the prevailing cost at other oil sands operations.
Once Long Lake is in full production, Nexen, the Calgary-based independent, will decide whether to retain its 7.23 percent stake in Syncrude Canada, the world’s biggest producer of synthetic crude.
Chief Executive Officer Charlie Fischer told a conference call July 15 that as the Long Lake partners gain experience from using their proprietary technology and build on their opportunities “we have some choices when we look at Syncrude.”
For now, he said, the Syncrude consortium is a “very valuable asset,” providing Nexen with extensive knowledge relating to the production and marketing of synthetic crudes and the production of bitumen.
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