Oilsands mine production bump prompts Shell upgrader expansion, says CNRL
Canadian Natural Resources bought 70% stake and took over operation
A boost in output from oilsands mines formerly operated by Shell Canada has sparked a $70-million expansion at a Shell oilsands upgrader, the president of Canadian Natural Resources Ltd. reported Thursday.
Increased reliability and process improvements have lifted capacity at Shell's former Albian mines in northern Alberta by about 40,000 barrels per day to 320,000 bpd since Canadian Natural bought a 70 per cent interest and took over operatorship three years ago, president Tim McKay said on a conference call to discuss fourth-quarter results.
He said Shell now plans to add 15,000 to 20,000 bpd of capacity to its Edmonton-area Scotford upgrader — which converts heavy oil from the oilsands into lighter synthetic oils — to match mining capacity at 320,000 bpd.
"What's really happened, with the great work of our team up at Albian, is that the ... mine has now been able to outpace the upgrader," he said.
"So it's a really nice fit in the fact that the oilsands at Albian can pace at 320,000 barrels per day and keep that upgrader full after its expansion here in the fall."
Higher capacity, lower costs
He pointed out the 14 per cent increase in capacity from the Albian mines occurred while operating costs fell by about 34 per cent or $10 Cdn per barrel over the past three years.
McKay said in a later interview the higher Albian capacity gives the company more flexibility to deal with Alberta's provincially mandated oil production curtailments — Albian can be ramped up when other oil projects are down for maintenance, for instance.
Shell still operates the upgrader despite retaining only a 10 per cent ownership stake followed the transaction in 2017 that gave Canadian Natural a 70 per cent stake. The arm of Royal Dutch Shell kept 100 per cent ownership of its nearby refinery and chemicals facilities.
Canadian Natural has been a consolidator of oilsands assets as international companies left the sector over the past few years and those acquisitions helped it reach a record average production volume of almost 1.1 million barrels of oil equivalent per day in 2019.
It reported in situ oilsands production from steamed wells rose to 259,000 bpd in the fourth quarter, a 154 per cent increase over the year-earlier period, in part because of the addition of the 100,000-bpd Jackfish project as part of a $3.78-billion deal with Oklahoma City-based Devon Energy Corp. last spring.
The company aims to drop operating costs by about $3.50 per barrel to between $8 and $9 per barrel at Jackfish this year thanks to synergies with its nearby Kirby thermal oilsands works, said Scott Stauth, chief operating officer of oilsands, on the call.
Canadian Natural announced that executive vice-chairman Steve Laut will retire from day-to-day operations in May but intends to remain on the board of directors. He was appointed to his current role two years ago after serving as president for the previous 13 years.
In view of recent volatile oil markets, the Calgary-based company announced a $100 million cut in 2020 expenditures without changing its production guidance. On the call, McKay said it could cut an additional $300 million to $400 million if market turmoil continues.
The company reported net earnings of $597 million for the three-month period ended Dec. 31, compared with a loss of $776 million in the same quarter a year earlier.
On an adjusted basis, Canadian Natural says it earned $686 million or 58 cents per diluted share from operations for the quarter compared with an adjusted loss from operations of $255 million or 21 cents per diluted share in the same quarter a year earlier.
Analysts on average had expected an adjusted profit of 70 cents per diluted share for the quarter, according to financial markets data firm Refinitiv.