Imperial Oil Ltd.'s decision to shutter production at its flagship Kearl mine shows that project reliability remains a challenge, even for the largest and most experienced operators in Alberta's oil sands.
The move cut short what had been a steady increase in output at Kearl's first phase, underscoring that new developments are vulnerable to operational setbacks similar to those that have dogged much older oil sands projects.
Imperial-run Syncrude Canada Ltd. has cut production expectations three times this year alone because of major equipment breakdowns. The same happened in 2013. A fire in 2012 also knocked the project's refinery-like upgrader out of service for 30 days. In 2011, a fire halted production at Canadian Natural Resources Ltd.'s Horizon mine. Suncor Energy Inc. has also experienced sudden upgrader outages.
"It's par for the course" in the oil sands, said Robert Mark, director at MacDougall MacDougall & MacTier Inc., which manages about $5.1-billion in assets, including Imperial shares.
"These are big, complicated refinery [and] manufacturing facilities all rolled into one," he said. "They have an annoying propensity to catch on fire from time to time. There's tons of moving parts and stuff can break down and go wrong."
Imperial, which is 69.6-per-cent owned by ExxonMobil Corp., said on Monday that output from Kearl was curtailed as a precautionary measure after the company detected what it called a "vibration issue" in the facility's ore-crusher unit.
Calgary-based Imperial said repair work on the unit, which begins the separation of bitumen from sand, would take "several weeks," but the company offered no specific date for restarting production.
"This work – early maintenance and repair to prevent longer-term issues – will have a near-term impact on Kearl production, but we believe it is the best approach to ensuring the safety and long-term integrity of the operation," spokesman Pius Rolheiser said.
The temporary shutdown is the latest in a string of setbacks for Kearl's first phase, a $12.9-billion project that has struggled to reach full capacity since starting up 18 months ago.
The mine, located about 70 kilometres north of Fort McMurray, Alta., began production in April, 2013. But it has yet to pump crude at its capacity rate of 110,000 barrels per day; production in the third quarter this year averaged 92,000 bpd, the company said.
The project's first phase suffered a large cost overrun, partly because of extra work required to break down enormous steel modules after plans to move them along U.S. highways encountered public opposition. Imperial was forced to reassemble the South Korean-made equipment in smaller loads for shipment to the project site.
In April this year, chief executive officer Rich Kruger said that process "certainly didn't help" with a smooth ramp-up at the mine. "It's like taking a high-performance sports car, cutting it in half, and then moving it a few miles down the road and trying to reassemble it," he said at the time.
The maintenance work is separate from the continuing construction of an expansion phase, which was 97-per-cent complete as of the third quarter. That project is expected to start next year ahead of schedule and will ultimately double Kearl's output, Mr. Rolheiser said.
But the mine's troubles "raise some question as far as operations and oversight, and the ability to really get it going the way it should be run," said Brian Youngberg, an analyst at Edward Jones & Co. in St. Louis, Mo.
Kearl represents a fraction of Exxon's overall output, he said, but the U.S. major "has a great history of running megaprojects like this, and Kearl has been a disappointment."
With files from Carrie Tait in Calgary