June 25, 2008

Alberta oilsands operators expand cautiously

CALGARY

While record high crude oil prices may be spurring enormous amount of growth in the oilsands, producers say there are many forces that are limiting their activities.

Petro-Canada will “plan around a relatively conservative business environment,” since it doesn’t know where the price of crude is going to be as major projects come on stream, company spokesman Andrew Stephens said.

The cost of raw materials like steel are up and governments in provinces like Alberta and Newfoundland and Labrador are taking an greater slice of oil royalties.

“Unfortunately while the pie is bigger, or the price is higher, everybody wants a bigger piece of that pie,” Stephens told reporters at a recent conference put on by the Canadian Association of Petroleum Producers.

“You lay on top of that a tight labour market and you can see why we want to be very careful in terms of making sure we do as much work as we can up front to plan very well so that we can execute these projects on time and on budget.”

The expansion of Petro-Canada’s MacKay River oilsands project could end up costing about 20 per cent more than its $1.2-billion price tag, Stephens said, citing increasing capital costs and the impact of Alberta’s new royalty framework.

In response, the company is thinking about integrating parts of MacKay River with its bigger Fort Hills Project, in which it has a 60 per cent working interest.

Regulatory approval for MacKay River will be pushed back from the third quarter into the beginning of the fourth, but Stephens said that won’t change its targeted 2011 startup date.

Nee Inc., which is jointly developing the $6.1-billion Long Lake oilsands project with OPTIC Canada Inc. said there are some drawbacks to the soaring price of crude oil, said chief financial officer Marvin Romanow.

“Fort Curry still continues to be a very busy area. There’s a lot of activity there both with construction and drilling. Getting access to manpower equipment and the cost of it is continuing to be a challenge,” Romanow told reporters outside the conference.

A doubling of natural gas prices to US$13 per thousand cubic feet has also posed some challenges.

“Costs have risen. To do a lot of the things that were much less expensive a few years ago is costing you more. So your margin is being impacted there,” Romanow said. “Getting access to equipment in some areas is a challenge.”

Canadian Press

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