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Imperial's Kearl oil sands operation

IMPERIAL OIL LIMITED

Imperial Oil Ltd. says it has switched on a multibillion-dollar oil sands expansion ahead of schedule, becoming the latest company to crank up new capacity despite subdued prices.

Calgary-based Imperial, a unit of Exxon Mobil Corp., said Tuesday all three production units at an $8.9-billion expansion of its Kearl project are operational, doubling capacity at the 110,000 barrel-per-day mine.

The move follows the start up, in February, of Imperial's $2-billion (U.S.) Nabiye development near Cold Lake, Alta.

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Oil sands producers have benefited in recent months from strengthening prices for Western Canada Select heavy crude, as robust demand and supply disruptions have helped to narrow the discount against North American benchmark oil. The gains have partially offset weakness driven by lingering oversupply concerns, bolstering returns even as the Organization of Petroleum Exporting Countries maintains pressure on prices in a bid for more market share.

In recent months, some of the biggest oil sands players have boosted output – in some cases to record levels – even as they dial back spending on expansion work to conserve cash. However, Imperial, Suncor Energy Inc. and others have pressed ahead with investments started before oil prices tumbled last year, while at the same time stepping up cost-cutting efforts.

Kearl, located about 70 kilometres north of Fort McMurray, Alta., is one of the biggest oil sands mines to start up in years. The project's first phase began production in 2013, but it has struggled to reach full capacity amid a string of operational setbacks. Last fall, production was abruptly halted because of mechanical issues in the facility's ore-crushing unit, for example. In the first quarter, it pumped an average 95,000 barrels a day out of a capacity of 110,000 barrels per day.

Kearl marks a change in oil sands mining compared to existing projects. It does not include an upgrading plant for converting molasses-like bitumen into refinery ready crude. Instead, a technology dubbed paraffinic froth treatment enables Imperial to ship diluted bitumen directly to market, reducing greenhouse-gas emissions and the need for costly maintenance, the company says.

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