Imperial Oil Ltd. is developing plans for a major new oil sands project that equals its current production of bitumen and synthetic crude, part of a looming boom in the construction of such megaprojects.
Imperial, already producing nearly 200,000 barrels a day from its standalone project and its share of Syncrude Canada Ltd.'s operations, said it is now considering a new facility at Kearl Lake, about 60 kilometres north of Fort McMurray, Alta.
The megaproject, if it goes ahead, would be built in partnership with Exxon Mobil Canada, a wholly owned subsidiary of Irving, Tex.-based Exxon Mobil Corp., which also owns a 69-per-cent stake in Imperial.
The Calgary-based energy giant said it aims to drill wells this winter to delineate the boundaries of where it will be able to mine the oil sands, and allow it to determine whether the project is viable.
Imperial and Exxon Mobil have already set up a dedicated team to evaluate the opportunities and risks of building a new oil sands operation at Kearl Lake.
Work is already proceeding on the engineering and environmental fronts.
"With Exxon Mobil Canada and Imperial working co-operatively, we can have a significant potential development there," said K.C. Williams, Imperial's senior vice-president, noting that the cost of controlling greenhouse gas emissions after 2012 remain a concern.
For much of the industry, however, worry over the Kyoto Protocol to reduce greenhouse gas emissions is being upstaged by concerns over capital cost overruns. Even EnCana Corp. president and chief executive officer Gwyn Morgan - one of the oil patch's most vocal Kyoto opponents - said fears about the impact of the greenhouse gas pact are fading.
"It's no longer a big factor. But only because, quite frankly, we fought the good fight," he said, referring to several changes the federal government made that limited the volume and cost for energy firms to reduce emissions.
Imperial's Kearl Lake project might include a new upgrader for turning bitumen into synthetic crude, although Mr. Williams said that option is one among several at the moment. Upgraders are not only costly, but they are also one of the most energy-intensive parts of producing synthetic crude - and one of the biggest producers of greenhouse gases.
The company has not set a budget for the project, although projects of similar size that included upgraders have cost more than $5-billion. Imperial did not outline a timeline for the project, either, although it did include production from Kearl Lake in a 2012 forecast shown yesterday to investors and analysts at the Canadian Association of Petroleum Producers' annual conference.
"By 2012, we think it could be operational," Mr. Williams said.
Wilf Gobert, vice-chairman of Peters & Co. Ltd., said he believes that Kearl Lake could eventually produce as much as 500,000 b/d.
Another analyst said he believes there is a strong possibility - an 80-per-cent probability - that Imperial will go ahead with the Kearl Lake project. "It's getting higher up on the priority list for them," said Martin Molyneaux, managing director of research at FirstEnergy Capital Corp. in Calgary.
Mr. Gobert said Kearl Lake would allow Imperial to leapfrog ahead of other companies to become one of the largest producers of bitumen and synthetic oil.
Imperial is far from alone in moving forward with oil sands expansion plans. Husky Energy Inc. of Calgary - which completed an equity swap with Imperial for Kearl Lake properties - said it could be producing 150,000 b/d by 2012.
Shell Canada Ltd., Canadian Natural Resources Ltd., Nexen Inc. and EnCana, all of Calgary, all said yesterday they are hoping to expand their production from the oil sands.
Mr. Morgan of EnCana said the first in a series of five 20,000-b/d expansions will kick off next year, each costing between $200-million and $250-million.
He said the comparatively small size of EnCana's expansions will allow his firm to avoid the budget overruns that have hit megaprojects. Shell Canada, for instance, saw the final cost of its Athabasca Oil Sands Project shoot up to $5.7-billion from the original projections of $3.9-billion. "You keep learning from the past, you don't have those big overrun risks that are plaguing our industry."