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kearl oil sands

The second time went smoother.

Exxon Mobil’s planned expansion of the Kearl oil sands project in Alberta, Canada, is on-line ahead of expectations, company officials said last week.

The $9 billion expansion is a carbon copy of the $12.9 billion first phase, and will double production capacity to 220,000 barrels of diluted bitumen a day.

First targeted to begin production by the end of 2015, company officials moved that date up to the third quarter in February. The mid-June startup beat even that goal.

It’s in contrast to the troubled first phase, which began full production nearly four months after the long-announced target date of the end of 2012.

Protests in Montana and Idaho blocked the transportation route of specialized modules manufactured in Korea for $250 million and barged up the Columbia and Snake rivers.

In Montana, Missoula County successfully sued the state Department of Transportation and the oil company to stop the Exxon “megaloads,” as they came to be known, from traveling down Highway 12 from Lolo Pass.

That action forced Exxon, its Canadian affiliate Imperial Oil, and transport company Mammoet to chop up hundreds of modules so they could be trucked along interstate routes to Alberta. As shipped from Korea, the megaloads were too high to fit under U.S. interstate bridges.

Imperial Oil, a Canadian subsidiary of Exxon, said that and other delays cost it some $2 billion.

Last week, Imperial chairman Rich Kruger said the expansion phase benefited in part by “strong relationships with Alberta-based contractors and lessons learned from the Kearl initial development.”

In other words, Imperial/Exxon didn't use overseas manufacturers. Roughly 90 percent of the $9 billion project went to Alberta-based companies, Imperial spokesman Pius Rolheiser said Friday.

“Specific equipment and components would have been acquired from specialized manufacturers outside of Canada; however, the pre-fabricated modules, like the ones we transported (through) Idaho and Montana for the initial development, were manufactured in Alberta,” Rolheiser said in an email to the Missoulian.

Even after the first phase of construction was complete, it took well over a year to work out bugs from manufacturing and installation-related defects on regulating valves as production lagged behind market expectations.

Kruger told reporters in April 2014 that the transportation issues in the U.S. and the reconfiguring they required hadn’t helped.

“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.

Rolheiser said Friday the most significant benefit of the expansion project came from Imperial’s “design one, build multiple” approach.

“The Kearl expansion is a duplicate of the initial development, so like just about anything, the second time is more efficient than the first,” he said. “For example, the detailed engineering, etc., did not have to be replicated. We used largely the same contractors and suppliers, again benefiting from experience and established relationships. Basically, when they finished the initial development, they just moved across the road and built it again.”

Imperial Oil has always viewed Kearl as a three-stage project, with future production reaching 345,000 barrels a day. The company said last week it's backing off its 2020 date for the third phase.  

"Recently, we've been telling investment analysts and audiences at conferences that it would likely be some time after 2020," Rolheiser told reporters in Canada. "Our fundamental growth plan for Kearl hasn't changed, but do we have all the specific steps, specific decisions made at this point? No."

The Kearl oil sands project is located 45 miles north of Fort McMurray, Alberta, and 270 miles north of Edmonton.

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Mineral County, veterans issues

Outlying communities, transportation, history and general assignment reporter at the Missoulian