A new partnership between oil sands giants will pour tens of billions of dollars into new bitumen projects over the next decade, as the world's biggest energy companies increasingly train their attention on northern Alberta's massive reserves.
In a deal that reshapes the ownership of the oil sands and raises new worries about a looming Fort McMurray labour crunch, Suncor Energy and Total SA have agreed to jointly build two new mines and a bitumen upgrader.
"The oil sands is the second-largest oil base in the world and we're the premier developer in that. So this, I think, is a vote of confidence," said Suncor chief executive officer Rick George in an interview.
Though actual construction has yet to be sanctioned by either company, the partnership heralds the most significant return to the oil sands since the economic crash brought numerous projects to their knees. Together, Suncor and Total will work to reinvigorate two of the most high-profile of those projects.
Both the Fort Hills oil sands mine and the Voyageur upgrader were stopped when costs began to spiral. Now, Total is boosting its stake in both projects, and the two companies say they should be built by 2016. In exchange, Total is giving Suncor $1.75-billion and a stake in its Joslyn mine.
Though the companies did not reveal specific costs, they disclosed ballpark figures that show they are contemplating a massive expenditure. The two mines will cost roughly $15.6-billion, while it will cost another $6-billion or so to complete Voyageur.
Combined with what it has already spent to acquire an oil sands stake, that means Total alone will spend $20-billion on Canadian projects by 2020. The French oil giant will spend the next few years boosting its Alberta work force from its current 250 to 1,400.
"This is a major investment position in the province," said Jean-Michel Gires, the president of Total E&P Canada Ltd., who expects the company will produce 200,000 barrels per day in Canada by the end of 2020.
"I think it's all good news for the province about its capacity to promote the development of its resource," he said.
At the same time, Suncor expects strong oil sands growth to propel an 8-per-cent annual increase in oil output for the next decade, bringing it to a million barrels per day by 2020. It plans to spend between $8-billion and $9.5-billion between 2012 and 2014 as it builds new projects.
Yet even those most optimistic about the new partnership concede there could be problems realizing such ambitious spending plans.
Money has come flooding back into the oil sands, with major projects either under construction or soon to begin from companies such as Imperial Oil Ltd., Husky Energy Inc., BP PLC, Syncrude Canada Ltd. and Canadian Natural Resources Ltd. Major engineering and construction firms have warned that the next few years could bring another labour crunch, and Mr. George acknowledged that "the biggest risk, the biggest challenge, is to get enough manpower on these projects."
Suncor has made changes to lessen that burden. It has structured each project to need no more than 4,000 workers at a time - down from the 7,000 it has used in the past. It has begun building a greater share of components off-site, and asked contractors to shoulder part of the inflation risk.
Mr. George admitted that Suncor is "adding to" a slate of projects that may result in cost pressures. But, he said, now that it has merged with Petro-Canada and partnered with Total, Suncor has far more power over how much work is done, and when.
"You have to remember, we're the biggest player and we'll have a lot of direct influence," he said. "We're not going to be at peak construction rates at all three projects at the same time. We'll have some control of what labour we're using - like when you're going through a peak on electricians, or pipefitters, or boilermakers, or instrumentation people."
Others, however, say Suncor and Total may be boosting their spending at a difficult time. Work on Voyageur, for example, will begin next year, while full sanctioning decisions on all three projects are expected by the end of 2012. At the same time, labour experts are forecasting potential labour shortages for 2012 and 2013.
"It's going to be a mess again, no doubt," said Phil Skolnick, managing director of equity research for Canaccord Genuity.
"The biggest issue is everyone is talking about joint ventures to accelerate or bring forward value. Not everybody can do that. You can't accelerate in the oil sands business. We know that. We've seen it before."