Imperial backs oil sands
$3.88B profit helps drive Kearl project
By Claudia Cattaneo, Calgary Bureau Chief, Financial Post
January 30, 2009
In the thick of the global economic downturn, Imperial Oil Ltd., Canada's largest oil company, posted another record annual profit and said it's increasing spending by 60% this year as it moves forward with the Kearl oil sands project.
While competitors awash in red ink are scrapping their oil sands investment plans, Imperial, 69% owned by Exxon Mobil Corp., said its profit increased in 2008 on higher oil and gas prices in the first part of the year to $3.88-billion -- the largest in its 129-year history -- from $3.19-billion in 2007.
Irving, Tex.-based Exxon Mobil, the world's largest oil company not owned by a government, is reporting its results today. Both have a long history of leading profitability.
In the fourth quarter, when oil prices sank as low as US$32 a barrel, Imperial still made a profit of $660-million, down from $886-million in the same period in 2007. Imperial said it plans to invest $2.2-billion this year, up from $1.4-billion in 2008.
"We do take a long-term approach and we are very disciplined in terms of our investment process and our operational process," said Imperial spokesman Gordon Wong. "It's in times like these when you start to see those kinds of results."
Andrew Potter, a UBS Securities Canada Inc. analyst, said Imperial and Exxon Mobil, with their massive cash positions, are well-positioned to take a bet on the oil sands.
"If you can afford to keep going, you are probably far better off in terms of labour productivity and availability when nobody else is around."
Mr. Potter said Imperial is one of few in the oil industry planning to spend more money this year than last and Kearl will probably be one of the few oil sands projects to be sanctioned in 2009.
Imperial, which owns 70% of Kearl while Exxon Mobil owns 30%, has not yet made a final corporate decision but is ramping up activity at the project as planned. There are 1,200 workers on site near Fort McMurray and contracts for engineering, procurement and construction management have been awarded.
"We view Kearl as a high-quality project, we are very encouraged by the work that has taken place to date, and irrespective of the current economic environment, our view of Kearl has not changed," Mr. Wong said.
The mining project would be developed in three phases and ultimately produce 330,000 barrels a day, including 110,000 b/d in the first phase. The cost for the first phase was last estimated at $5-billion to $8-billion and would not include an up-grader. An updated cost estimate and schedule will be announced when a corporate decision is announced this year, Mr. Wong said.
In the oil sands, Imperial also owns the Cold Lake project and has a large stake in the Syncrude joint venture.
Meanwhile, Royal Dutch Shell PLC, the Anglo-Dutch oil major that has put on hold further oil sands expansions, yesterday reported a loss of US$2.81-billion for the fourth quarter, its first quarterly loss in 10 years, compared with a profit of US$8.47-billion a year ago.
Jeroen Van der Veer, chief executive, said Shell still likes the oil sands over the long term.
"We expect that delaying it will [result in] lower construction prices in Canada, because we expect a less overheated market in Alberta," he told analysts in a conference call.
Petro-Canada, which reported a loss yesterday of $691-million, is waiting for energy prices, financial markets and costs to become more favourable before deciding whether to proceed with its Fort Hills oil sands project.
"We intend to wait until we see a turn in commodity prices and the financial markets before moving ahead," Ron Brenneman, CEO, said in a conference call. "In the meantime, we're stepping back and reworking the costs."
Petro-Canada's investment decision will not be influenced by a hostile bid this week for UTS Corp., which has a 20% stake in Fort Hills, by French major Total SA, he said.
Houston-based ConocoPhillips, which reported a loss for the fourth quarter of US$31.8-billion on Wednesday due to lower oil prices and the writedown of assets bought aggressively when prices were higher, said it, too, is slowing spending on its oil sands joint venture with EnCana Corp.
© Copyright (c) National Post
http://www.vancouversun.com/business/fp/Imperial+backs+sands/1233448/sto...
