Oil Sands Truth: Shut Down the Tar Sands

“The (labour) picture [in Fort Muck] isn’t getting any better – in fact it’s getting worse."

Fort Hills to cost $14-billion
Norval Scott, June 28, 2007 at 10:45 AM EDT

Petro-Canada put out the long-awaited cost and design specifications of its Fort Hills oil sands project Thursday, which it is developing with consortium partners UTS and Teck Cominco. The first phase of the project, which includes both the development of both an oil sands mine and the construction of an upgrader, will cost $14.1-billion to get off the ground. It will produce 140,000 barrels a day of synthetic crude - or around $100,000 per flowing barrel, a figure that's in line with usual industry guidelines. A definitive cost estimate and a final investment decision will be made in around 12 months.

The announcement that doesn't appear to contain any real surprises: Petro-Canada said it will stagger bringing the mine and upgrader online to minimize labour requirements. The firm is looking at expanding Fort Hills in a large second stage, rather than smaller second and third stages, to bring production up to 280,000 b/d.

The challenge for Petro-Canada now is to execute the project as proposed. That could be problematic for two reasons: 1) the initial stages of other oil sands projects have come in way over budget as costs have increased - can Petro-Canada succeed where others have failed? - and 2) Petro-Canada itself doesn't have the best track record where it comes to executing major projects, a failing that's historically been reflected in the company's share price. If the firm can bring Fort Hills onstream on time and on budget (and fully functional), then the Petro-Canada ship will be a long way towards being righted.

Some selected quotes from the conference call this morning:

Ron Brenneman, CEO:

“We have great dirt, great people and a strong balance sheet. We realize there is an execution risk, but we can mitigate that and produce solid returns… This is a great project and we are ready to take the next step.”

Neil Camarta, Senior Vice President, Oil Sands:

“We’re pleased we’ve nailed down the size, scope and pricetag of the project, and we have a really good handle on the risk involved.”

“The (labour) picture (in Fort McMurray) isn’t getting any better – in fact it’s getting worse. This is what keeps me awake at night.”

"It’s important that we land phase 1 and land it well, as it makes the later project phases more attractive."

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