Canadian Natural Resources Ltd. will likely begin reviving its Kirby project south of Fort McMurray late this year or in early 2010, company president Steve Laut told an annual investment symposium held in Calgary by the Canadian Association of Petroleum Producers. The company’s board of directors will be asked for approval to start spending on drilling and construction, a procedure known as “sanction” in the industry.

By oil sands standards, the first stage of Kirby is modest. The plan calls for developing 45,000 barrels per day of production for an estimated $600 million to $700 million. But for CNRL, going ahead on Kirby affirms that an ambitious growth strategy will survive the global financial crisis. The program calls for staged development of 285,000 barrels per day of output from an estimated 5.6 billion barrels that can be recovered with current technology from a vast spread of bitumen leases that the company owns between Fort McMurray and Cold Lake. Laut described the holdings as CNRL’s “hidden gem.” Unlike the company’s open pit mining Horizon Project north of Fort McMurray, Kirby is one in a series of thermal in-situ projects that use pairs of wells for steam injection and production to tap oil sands deposits which are too deep to mine. Instead of the high-grade synthetic crude oil that comes from other mining projects that include “upgrader” plants, the in-situ operations pump out raw bitumen that has to be thinned with “diluents” to flow in pipelines.

Excluding the value of the additives, bitumen alone has traditionally fetched only about half the price of upgraded oil sands production. But market changes are ending that incentive to build plants, create jobs and increase government revenues by processing Alberta resources in Alberta which has been a cornerstone of provincial economic policy since the 1970s.

The old price discounts against low-quality oil are fading, reported Laut. In recent months the “differential” between light and heavy grades has shrunk to 10 per cent or less from the formerly standard range of 30-40 per cent. The change appears likely to be permanent, agreed Baytex Energy Trust president Tony Marino, whose firm produces heavy crude in the Peace River oil sands region.

The trend is credited largely to Enbridge Inc’s and TransCanada Corp.’s export pipelines, which are extending Alberta deliveries all the way to Texas. The province’s exports were previously confined to oversupplied markets in the Chicago region. At Gulf coast refineries equipped to process heavy oil, Alberta bitumen is replacing dwindling output from Venezuela and Mexico. Laut disclosed that CNRL is supporting its oil sands growth program by booking capacity to ship 120,000 barrels a day to the Gulf coast on the second stage of TransCanada’s new Keystone Pipeline.

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