Petro-Canada working on costs
Claudia Cattaneo, Financial Post Published: Friday, December 12, 2008
CALGARY -- Petro-Canada is seeing "a pretty good response" as it re-negotiates deals to bring down costs at its delayed Fort Hills oil sands project, Ron Brenneman, chief executive, said Friday.
"I don't know where it will end up or whether it's enough to make a difference in the overall project economics," but costs are moving down and are becoming more predictable, Mr. Brenneman said in an interview.
The oil company, Canada's fourth largest, put its oil sands plans on hold last month, deferring until next year a decision on whether to proceed with a bitumen mine near Fort McMurray, Alta., and indefinitely shelving construction of an upgrader near Edmonton.
It is renegotiating the contracts that led to a $24-billion price tag last summer for Fort Hills, the highest so far for the oil sands based on the project's output.
The decision to put the project on hold led to job cuts and a hiring freeze, Mr. Brenneman said.
Contractors that could not be redeployed were let go. Plans to hire 600 to 700 people in the next few years are on hold.
"Most of that was driven by our oil sands project, but not all of it," Mr. Brenneman said. "Until we get our project sorted out and we actually have a decision, we are not hiring any more people."
Petro-Canada said on Thursday it would cut its 2009 capital budget to $3.96-billion from the $6.16-billion it expects to spend this year.
Negotiations with the Alberta government to renegotiate its oil sands lease agreement, under which Fort Hills must produce its first oil in 2011, are underway.
If discussions lead to a favourable outcome, Petro-Canada could re-start the mining part of its oil sands project quickly, Mr. Brenneman said.
"The thing that is changing for us is that we are moving off the schedule of the project onto a cost-driven project, so we will keep working the costs until we are either happy to go ahead or we decide that it's not right," Mr. Brenneman said. "We are going to accept whatever the schedule is that gives us the minimum cost."
Petro-Canada is considering sending some of its bitumen from Alberta to its Montreal refinery if a pipeline is reversed. It has also talked about an arrangement with U.S. refineries rather than build an upgrader near Edmonton.
Mr. Brenneman said Petro-Canada isn't the only oil sands developer pressing suppliers for better pricing as the crude oil collapse leads to cancellations.
Projects that move forward during the slowdown would do well with lower costs and be ready to produce as oil prices recover, he said. In the medium to longer term, with so many projects deferred, "the growth rate of the oil sands will have to come down from what people were expecting," Mr. Brenneman said.
