Buffeted by a frigid winter in northern Alberta and still suffering from transport delays in Montana and Idaho, Imperial Oil of Canada has raised the estimate of initial costs for its Kearl oil sands project by $2 billion.
Canadian media reported last week that Imperial, which is 70 percent owned by Exxon Mobil Corp., now predicts it will begin mining diluted bitumen by the end of March – three months later than its long-expected startup. The first phase will cost $12.9 billion, not the $10.9 billion projected in June 2011.
The transportation setbacks included a successful civil suit by Missoula County and four co-plaintiffs that stopped the Montana Department of Transportation from issuing permits for more than 200 “megaloads” on U.S. Highway 12 over Lolo Pass.
Imperial Oil was forced to break the modules into lower-profile pieces to haul them on interstate routes, then reassemble them near Edmonton.
“This was an enormous work effort … involving hundreds of workers for more than a year,” Imperial spokesman Pius Rolheiser told CBC News last week.
In a fourth-quarter results news release, Bruce March, Imperial’s chairman, said the initial development and expansion projects will develop 3.2 billion barrels at a unit cost of roughly $6.80 per barrel.
“This is up 10 per cent from the prior estimate of $6.20 per barrel, driven by the cost of re-sequence work from the module transportation issues and the early onset of winter and harsh weather during startup of the Kearl initial development,” March’s statement said.
Despite the module delays the past two years, company officials continued to say the Kearl project remained on schedule to fire up by the end of 2012. That changed in December, when it became clear that the weather wouldn’t allow construction to be completed until January.
Temperatures in the Fort McMurray, Alberta, region dipped close to minus 40 Fahrenheit.
Last week’s announcement moved the startup estimate back even further, though Imperial/Exxon expects the Kearl fields to be a 40- to 50-year project. Some say it may be even later in the spring before mining begins.
“We would not be surprised to see production not starting up until May,” Andrew Potter, an analyst at CIBC World Markets, told CNBC.com.
Rolheiser couldn’t be specific about how much money the module transport delays cost the company, but he did tell the Calgary Herald “it would be accurate to say this was the largest factor in the upward cost revision.”
Foreign exchange rates also increased the project’s costs, an Exxon Mobil official said.