Canadian Manufacturing

Massive Kearl oilsands mine ready to start up any day now

by The Canadian Press   

Canadian Manufacturing
Manufacturing Energy Oil & Gas Exxon Mobil Imperial Oil oil oilsands

Will put 110,000 barrels of crude a day

CALGARY—With Imperial Oil Ltd.’s Kearl oilsands mine ready to start up any day now, CEO Rich Kruger shrugged off concerns about whether the already tight North American market can soak up another 110,000 barrels of crude a day.

“Start up is imminent,” Kruger told reporters following the company’s annual general meeting on Thursday. “It’s real soon. We’re right on the cusp of starting up.”

Late last year and early this year, the price gap between Canadian heavy oil and U.S. light oil widened to an abnormal level, cutting into producers’ profits and Alberta’s tax and royalty revenues.

The discount on heavy crude was one reason that Imperial reported a 21 per cent drop in first-quarter earnings compared with a year earlier.


The differential has since narrowed, but the CEO of another major oilsands firm, Cenovus Energy Inc., warned Wednesday that it’s not expected to last.

A major reason for that view, Brian Ferguson said, is Kearl.

The crux of the problem, industry players and the Alberta government say, is a dearth of pipeline infrastructure to get oilsands crude to the markets that can pay the best price. Pipelines such as TransCanada Corp.’s Keystone XL project have faced fierce environmental opposition.

Kruger said he believes the 830,000-barrel-per-day Keystone XL pipeline, which would connect mostly oilsands crude to the U.S. Gulf Coast market, will ultimately go ahead after years of delay.

But if not, Imperial also has the flexibility send its crude to its own refineries in Alberta and Ontario, as well as ExxonMobil’s network.

Oil will flow out of Kearl for several decades and Kruger did not appear fazed by all of the market swings that are sure to take place over that period.

“Time has an amazing way of working through the issues,” he said. “I think we’ll see, over time, that market forces work here.”

Earlier this year, Imperial said the first phase of will cost $12.9 billion, up from a previous estimate of $10.9 billion. The project was initially expected to cost $7.9 billion.

Imperial is building Kearl, north of Fort McMurray, Alta., alongside its U.S. parent company, energy giant ExxonMobil Corp.

Startup had been targeted for late 2012 or early 2013, but harsh winter weather has slowed the process. Crude from Kearl won’t be sold until the third quarter of this year, as it takes time for the oil to move through pipelines.

Kruger said it’s important to remember “the absolute scale” of Kearl when it comes to its schedule. As numerous components are put together, many adjustments need to be made along the way.

“Nothing that I would describe is unusual or atypical. It’s just a big world-class project,” he said.

Imperial and ExxonMobil are also in the early stages of looking at exporting their natural gas in liquid form from Canada’s West Coast.

Together, they have a large acreage position in northeastern B.C.’s gas-rich Horn River Basin, recently augmented by the recent $3.1-billion acquisition of Celtic Exploration Ltd., which had shale gas holdings in the Montney formation in B.C. and the Duvernay formation in Alberta.

Imperial and ExxonMobil recently made an expression of interest in B.C. Crown land at Grassy Point, north of Prince Rupert, as a potential site for an LNG terminal.

Others looking at that location include Nexen, owned by Chinese firm CNOOC Ltd., Australia’s Woodside and Korea’s SK E&S.

Kruger said Grassy Point is just one option Imperial and Exxon are exploring.

“When you look at LNG sites, you need a number of things, he said. ”You certainly need the stability of the land to put a big facility on it. You need access to deep water so you can bring ships to load in.“

Imperial changed CEOs earlier this year as part of a broader corporate reshuffle at its parent company.

Bruce March left Imperial to run ExxonMobil’s global chemical operations after nearly five years in the role. Kruger had been president of ExxonMobil Production Co.


Stories continue below