Kearl Oilsands Project Near Fort McMurray Gets Go Ahead May 26, 2009

Bruce March, president and chief executive officer-designate of Imperial Oil Ltd.
Photograph by: Bloomberg, Edmonton Journal
EDMONTON — In a rare bit of good news for Alberta’s oilsands industry, energy giant Imperial Oil gave the formal go-ahead Monday for the first phase of its $8-billion Kearl mine project 70 kilometres northeast of Fort McMurray.
Imperial has already spent $800 million on preparations for the project, completing engineering and site preparations. Heavy construction will begin soon, with production of raw bitumen scheduled for 2012.
Imperial and its contractors already have about 1,000 staff working on the project, and that number will jump to 3,000 during peak construction, and thousands more will find work in equipment manufacturing and support services.
Phase one will produce 110,000 barrels of bitumen a day, and production could top 300,000 barrels if all three phases are built. By that time, up to 1,300 permanent staff could be employed there by Imperial.
“It’s a very exciting day for Imperial,” said company spokesman Gordon Wong. “Kearl is a big project and a high-quality oilsands resource.”
Brad Anderson, executive director of the Construction Owners Association of Alberta and the Alberta Chamber of Resources, said the Kearl announcement is the kind of news Albertans need to hear right now.
“This is great news for Alberta’s heavy industrial industry and for Imperial. If there are 3,000 workers, that means good incomes for 3,000 families, and that is a wonderful thing,” he said.
Anderson said major announcements like this used to come on a regular basis during the recent boom.
“I think we got kind of spoiled, and complacent. My reaction is that this is a good thing, and we want more of it.”
Alberta Energy Minister Mel Knight called the project “very significant.”
He said given lower commodity prices, the province expected “there would be a bit of a hiatus here as things tempered a bit and we saw some slackening here of the costs around working in Alberta.”
But that also meant opportunities as construction costs retreated.
“Any of the players that are there have taken the opportunity to go back through their procedures and look at their costs and look at their opportunities. They will all be doing a very similar thing, trying to determine whether or not these projects are now at the right time to move forward,” he said.
The Pembina Institute, an environmental group, is unhappy with Imperial’s lack of response to concerns about the yellow rail, a ground-dwelling bird listed as a species of “special concern” under federal legislation.
Imperial was asked to study mitigation options and review the cumulative impacts on the birds in the oilsands region as part of a 2007 Energy Resources Conservation Board decision approving Kearl.
“Due process has not been followed. Imperial has not cleared this legal hurdle, and land is being cleared that shouldn’t be cleared,” said Simon Dyer, oilsands program director for Pembina.
“We may have to ask for a rehearing.”
Last year, Kearl’s permit for ditching and drainage work was initially rejected by the Oceans and Fisheries Department after a federal court agreed the panel assessing Kearl’s environmental impact had failed to adequately explain why it had approved Imperial’s plan to manage greenhouse gas emissions from the project.
The permit was later reissued.
Imperial’s plans have been aided by a big drop in construction costs as rival projects fall by the wayside. Indeed, the downturn in northern Alberta could lower the $4.50 per barrel construction cost even further.
“They’ve got no debt and can execute on a major oilsands project in an environment where costs look to be trending down,” said Chris Feltin, an analyst at Tristone Capital. “If they are able to lock in even lower rates than they are estimating now, there may be some opportunity for that $8 billion (estimate) to come in even lower.”
The Kearl project is a mine only, but it’s output of raw bitumen could easily be shipped 50 kilometres to the Syncrude’s Mildred Lake upgrader and turned into synthetic crude oil. It could also be shipped for upgrading and refining to Imperial refineries in Edmonton, or to a U.S. location.
Imperial owns one-quarter of Syncrude and is the managing company. It also operates the Cold Lake oilsands project, which produces around 150,000 barrels a day.
Imperial will own 70 per cent of the Kearl project while parent company Exxon Mobil holds the remaining stake.
Imperial is 69.9 per cent owned by Exxon Mobil Corp.