Sitting on Kearl project announcement saved Imperial Oil more than $500 million

CALGARY - Waiting nearly a year to announce formal approval of the Kearl oilsands mining project saved Imperial Oil Ltd. between $500 million and $1 billion in capital costs, chairman and chief executive Bruce March told investors Tuesday.

The $8-billion, 110.000-barrel-per-day first phase of the long-anticipated project, announced Monday but contemplated since 2002, dominated questions at a shareholder presentation in Toronto that was broadcast on the Internet.

"We could have endorsed Kearl and moved along six to nine months ago," said March, adding that Imperial was discouraged by labour and material cost escalation in northern Alberta due to billions of dollars in proposed competing projects and expansions.

The subsequent collapse in crude oil prices from $147 US per barrel last July and deferral of those projects resulted in huge cost savings.

"I think if you went back to a year earlier, early summer last year, you would be looking at somewhere between a half to a billion dollars more in investment (to build Kearl)," March said.

Imperial executives also tackled the thorny question of where the raw bitumen will be upgraded, noting that most of the early production expected starting in late 2012 will be going to Imperial's two Ontario refineries with a smaller portion to the Strathcona refinery on the east side of Edmonton.

"We will look first to run Kearl at our own refining assets," said March. "We can't get Kearl to Dartmouth (N.S.), so it's limited to Strathcona and our two Ontario refineries. Kearl is a heavy, low API gravity crude and I think you'll see us concentrate most of that upgrading at our two Ontario sites, rather than our Strathcona site which is less leveraged towards conversion capability.

"We'll also look to market Kearl to other upgraders in the Alberta area to minimize transportation costs. . . . and then last but not least we look at all the other third-party opportunities in the upper Midwest and eventually, shortly after 2012, you'll be able to get Kearl into the Gulf Coast."

Kearl's proprietary mining technology will produce a bitumen that can be mixed with diluent chemicals and shipped by pipeline.

In a news release early Tuesday, Gil McGowan, president of the Alberta Federation of Labour, echoed opposition politicians in Alberta who took the province to task over the negatives of exporting raw bitumen.

"Over the longer term, this project is deeply troubling because it's focused exclusively on the extraction and export of raw bitumen," McGowan said. "The real money - and the real jobs - in this business are in upgrading and refining.

"Unfortunately Kearl will be sending all of those benefits down the pipeline to Exxon refineries in the US Midwest and Gulf Coast."

Premier Ed Stelmach said Monday the government has a plan in place to add value to bitumen, noting value is being added to about 700,000 barrels of the roughly 1.2 million barrels per day currently produced.

The premier said the province must address several issues before more upgrading can occur, including a cumulative environmental assessment to determine the level of emissions acceptable for Alberta's refining, upgrading and petrochemicals sector and ensuring adequate pipeline access for shipment.

"I feel very confident that we'll not only increase the amount of bitumen upgraded, but we're going to add thousands of jobs in the petrochemical industry," Stelmach said.

Calgary Herald, Tues May 26 2009
Byline: Dan Healing

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