Oil sands ambition shows staying power
By early 2009, setbacks dealt out to Alberta’s oil sands looked crushing. Project delays became routine
Monthly average oil prices fell 70 per cent from $140 a barrel in July 2008 to $42.45 in December. Construction cost forecasts stayed stubbornly high after doubling or even tripling in the bygone oil sands rush.
Searches for new partners to spread development risks – or buyers to take over projects – dragged or failed. Gutted banks and stock markets turned sour on large energy investments except for the safest pipeline and power utilities with virtually guaranteed, regulated returns.
Polling convinced the Canadian Association of Petroleum Producers that industry dropped the ball in the court of public opinion. Corporate giants, including oil sands pioneer Suncor Energy Inc., slowed down current projects or suspended decisions on starting new construction. Smaller newcomers felt hard pinches. OPTI Canada Inc. gave up one-third of its former half interest and its operational role in the Long Lake megaproject to bigger partner Nexen Inc. for $735 million. Connacher Oil and Gas Ltd. temporarily curtailed production at its Great Divide bitumen development and suspended an expansion project called Algar. BA Energy stopped work and sought bankruptcy protection after missing a $50-million repayment due on a construction loan for its Heartland Upgrader northeast of Edmonton.
But a checkered 42-year production history, studded with reversals from plant fires to megaproject cancellations, has forged oil sands developers into a hardy breed. “Notwithstanding this lower forecast,” Robert Pearce says when he reviews reduced expectations including a 50 per cent cut in CAPP investment predictions, “we still have this tremendous resource.”
As chief financial officer of North West Upgrading Inc., Pearce counsels patience and learning from experience. He voluntarily yielded his former title as president to let his firm give the top job to more seasoned Royal Dutch Shell veteran Doug Quinn. The new recruit’s credentials include managing U.S. refineries and technical planning of the Athabasca Oil Sands Project’s mammoth Fort Saskatchewan bitumen processing plant.
“These are 30-plus-year projects,” says Pearce, 50. “None of us can be making decisions based on what’s happening this week or this month.”
His background – project engineering for the Canadian Pacific Railway, then a business administration degree and finance roles with investment houses and PanCanadian Energy (now EnCana Corp.) –
equipped him to make a decision that kept North West solvent. Long before oil prices and energy share indexes peaked then went into tailspins, the firm opted in early 2008 not to start building the first of three stages of 77,000 barrels per day each planned for its bitumen upgrader complex northeast of Edmonton.
“Strangely enough, it’s worked out well,” Pearce says. North West avoided taking chances on being charged rising interest rates for project loans or even entirely losing lender support in mid-construction. Those risks were high and outlines of the developing global credit crisis were clear to financially savvy planners by the winter of 2007-08, he recalls. “We’re in good shape,” Pearce says.
North West’s project has all necessary industrial and environmental permits after completing about three years of regulatory work. About $300 million has been spent to date. Nearly one million hours of engineering has generated thousands of drawings for construction contractors to follow. Prefabricated plant pieces such as steel pressure vessels are in storage, ready to install.
Pages: 1 2
Issue Contents
Entries