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24 May 2018
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Kearl oilsands project price tag increases by $2B

Posted: Feb 1, 2013 3:22 PM ET

Last Updated: Feb 1, 2013 5:38 PM ET

The first phase of Imperial Oil Ltd.'s Kearl oilsands mine will cost $2 billion more than previously expected as the company faced issues transporting Korean-made modules to the mine site in northern Alberta and contended with harsh weather during startup.

The first 110,000-barrel-per-day phase will now cost $12.9 billion, up from a previous estimate of $10.9 billion.

Taking into account a second $8.9-billion phase in the works, the whole development is expected to have a cost of $6.80 per barrel, up 10 per cent from a prior estimate of $6.20.

When the Calgary-based firm announced in 2009 that it would build the Kearl mine, it expected three phases of roughly the same size. Later, it decided to build the mine in two phases, with smaller projects along the way to boost output in increments.

Multiple delays

Imperial faced legal and regulatory delays in bringing enormous pieces of equipment to the mine site, which were shipped across the Pacific and then through the United States and Canada by river barge and truck.

The 200 modules had to be broken up into smaller pieces so that they could be transported along interstate highways and then put together again near Edmonton.

"This was an enormous work effort... involving hundreds of workers for more than a year," said Imperial spokesman Pius Rolheiser.

Imperial rejigged the order in which the work was conducted so that it could begin to bring Kearl on stream in late 2012, as scheduled. First production of mined diluted bitumen is expected this quarter.

But that meant commissioning and startup activity timelines were "compressed" and had to take place during harsh winter weather.

"We've been dealing with minus-40 weather at times and that necessarily has an impact from a safety perspective on how employees can work," said Rolheiser.

Despite the challenges, Kearl remains a "very, very attractive project" that will produce oil for four or five decades, Rolheiser said.

The cost estimate of the second phase remains at $8.9 billion and is not at risk of being jacked up by the same factors that affected the first.

"With the exception of that one unnecessary external factor — the module transportation delays, which couldn't have been anticipated and over which we had no control — the execution of the Kearl initial development was exemplary from a productivity standpoint, most importantly form a safety standpoint," said Rolheiser.

Profits up

Also Friday, Imperial reported a seven per cent increase in net income in the fourth quarter as lower expenses more than offset a decrease in revenue.

Imperial, a publicly traded subsidiary of Houston energy heavyweight ExxonMobil Corp. (NYSE:XOM), said net income in the last three months of 2012 was $1.07 billion or $1.26 per share, above 2011's $1.01 billion, or $1.18 per share.

It also handily beat analysts estimates of 99 cents per share, according to Thomson Reuters.

Revenue fell to $7.8 billion from $8.1 billion, in line with estimates. However, expenses also dropped to $6.39 billion from $6.86 billion.

In mid-day on the Toronto Stock Exchange, Imperial shares were up 21 cents at $44.01.

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