Oil Sands Truth: Shut Down the Tar Sands

Conoco's Surmont Tar Sands expansion to quadruple production (with help from TOTAL).

Conoco's Surmont oilsands expansion to quadruple production
By Shaun Polczer, Calgary Herald
January 20, 2010

CALGARY — In another sign that Alberta's oilsands sector is on the mend, the Canadian subsidiaries of multinational oil giants ConocoPhillips and Total said Tuesday they plan to quadruple oilsands production by 2015, generating billions of new investment and creating thousands of jobs in the stagnant oilsands sector.

The 50-50 partners said construction will begin later this year to increase production at Surmont to 110,000 barrels per day by 2015 from current output of 27,000 bpd.

"Surmont is an important part of our oilsands portfolio and we're pleased to announce its next phase of development," John Carrig, Conoco's president and chief operating officer, said in a statement. "The oilsands are an area of significant future oil production growth and are important for short-and long-term energy and economic security in North America."

ConocoPhillips Canada president Matt Fox said the project would create 2,500 construction jobs plus an additional 300 full-time operating positions once complete. Although the costs for the project weren't disclosed, Conoco vowed to spend an additional $300 million over the next five years to research heavy oil technology aimed at reducing environmental impacts and increasing production efficiency.

"We're not quoting specifi c costs, but clearly it's a multibillion-dollar project," Fox said.

More than $100 billion worth of new oilsands projects and expansions were delayed, cancelled or deferred after oil prices plummeted from their all-time highs of $147 US a barrel in the summer of 2008, but industry observers are hopeful that recent announcements by Imperial Oil to go ahead with the Kearl mine, Devon Energy's Jackfish expansion and now Conoco and Total mark the start of a renaissance for the sector's fortunes.

"Obviously that's positive news for the oilsands. I believe the in situ part of the oilsands is key to the future growth of the industry," said Don Thompson, president of the Fort McMurray-based Oil Sands Developers Group.

Likewise, Total Canada president Jean-Michel Gires said the company plans to revive plans to construct an upgrader in the Edmonton region to convert its growing oilsands production into synthetic crude oil.

Gires said the company, which is moving ahead with the Joslyn mine, remains committed to upgrading its share of production into synthetic crude oil in Edmonton. A regulatory hearing into the delayed upgrader will go ahead in February, but construction plans won't be finalized until Total gets a better idea of when Joslyn will come on stream.

"(Upgrading) that's part of our plans, yes," he said.

But Len de Gans, who heads Edmonton-based Rally Engineering, which has performed work for companies such as Suncor and ConocoPhillips since it was formed in 2004, said many of the megaprojects remain in the study phase and he hasn't seen an uptick in activity.

Nonetheless, his firm remains busy performing maintenance work at existing refineries and facilities in the Edmonton and Fort McMurray regions.

"We haven't seen any trickle down, yet, but you have to give it a little more time; but we always remain optimistic."

Surmont is approximately 63 kilometres southeast of Fort McMurray near Conklin, which is emerging as a major in situ oilsands region. Surmont, which was originally developed by Gulf Canada in the late 1990s, was a pioneer in a thermal technology known as steam-assisted gravity drainage (SAGD), which uses twinned pairs of horizontal wells to simultaneously inject steam and produce loosened bitumen.

Analysts said the final sticker price of the expansion project would likely come in around $3.3 billion based on a projected cost of about $30,000 per flowing barrel.

"It's hard to say how much costs have come down," said Phil Skolnick, an oil and gas analyst with Genuity Capital in Calgary, who estimated that a typical SAGD project would've run around $35,000 to $40,000 six months ago.

"Everyone's saying that right now, but it's not going to last."

Surmont was Total's foray into Canada's oilsands and Gires said Phase 2 marks a milestone for the company's ambitions to produce 250,000 bpd in Canada by 2020.

Gires added that technology developed at Surmont, such as SAGD, is now being used in the company's other operations around the world, most notably in Venezuela.

Projects such as Surmont are expected to put Canada back on an oil production growth track as conventional output continues to wane, according to a report by the Organization of Petroleum Exporting Countries.

Canada's oil output is expected to average 3.26 million bpd in 2010, an increase of 90,000 bpd over last year, according to an OPEC monthly oil market report released on the cartel's website. Average exports to the United States held steady at 1.92 million bpd in 2009, making Canada the top oil supplier to the world's largest consumer.

"The expected healthy growth level is supported by the startups and ramp-ups of various oilsand projects, while conventional oil production is seen to decline," the report said. "Projects such as Foster Creek and Muskeg are seen increasing Canadian oil supply in 2010."

ConocoPhillips' shares rose 69 cents on the New York Stock Exchange on Tuesday to $53.71 US, while Total's were up $1.49 to $64.90 US.

© Copyright (c) The Calgary Herald


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