CALGARY — Imperial Oil Ltd. (TSX:IMO) should have no trouble balancing a potential expansion to its Cold Lake operations with its other major undertakings in the oilsands, including its recently approved $8-billion Kearl oilsands mine, oilpatch observers say.
The Calgary-based energy giant is considering moving ahead with three growth phases at Cold Lake, called Nabiye, which have the potential to add an average of 30,000 barrels of oil per day in production.
“They do have the deepest pockets. They have virtually no debt. They’ve got the financial muscle to pull it off whenever they’re ready to move forward with it,” Edward Jones analyst Lanny Pendill said Wednesday.
John Stephenson, portfolio manager with First Asset Investment Management, agreed that Imperial has the “wherewithal” to handily balance Kearl and Nabiye.
“One of the things that distinguishes Imperial from everybody else is …they’re very good financial managers,” he said.
Nabiye was first granted regulatory approval in 2004, and now Imperial is doing some planning and design work for the project, company spokesman Gordon Wong said.
“A decision has not yet been made to officially proceed with the expansion. The work that we’re doing now will ultimately help us to make that decision,” he said.
If it does go ahead, Nabiye could include features that were not part of the original design, like a sulphur recovery plant and an electrical cogeneration facility.
Technological advancements since 2004 would also help reduce the facility’s surface footprint.
The changes would probably require more regulatory steps, Wong said.
“Once we make a decision on what these phases will look like… we will likely need to do additional stakeholder consultations.”
Wong did not give details on a price tag or timeline for the proposed expansions.
A research note by Peters & Co. analyst Kam Sandhar suggested the cost was expected to be around $1.3-billion and a decision to move forward could be made by the end of next year.
Now is probably a good time for Imperial to start work on Nabiye, since oil prices are on their way up and costs are on their way down, said First Asset’s Stephenson.
“Growth is back on. At $70 oil these things are starting to look attractive again,” he said.
Cold Lake is the longest-running thermal oilsands operation in Canada, which uses a method called “cyclic steam” to extract bitumen from the sand. Commercial production began at the site, in east-central Alberta, in 1985.
So far it has been developed in 13 phases, with Nabiye representing phases 14 through 16.
Cyclic steam projects require a lower crude oil price threshold to be economically viable than more traditional mining or steam-assisted gravity drainage methods, Stephenson said.
In May, Imperial’s board of directors decided to give the green light to its Kearl oilsands mine north of Fort McMurray, Alta.
The $8-billion project’s first phase is expected to produce 110,000 barrels of bitumen per day, with startup in 2012. Eventually that project could ramp up to 300,000 barrels per day.
In addition to its oilsands projects, Imperial also has refineries in Alberta and Ontario and a chain of Esso-branded gasoline stations throughout the country. It is 70 per cent owned by U.S. energy giant ExxonMobil Corp. (NYSE:XOM).
Imperial shares rose two per cent, or 80 cents, to $39.60 on the Toronto Stock Exchange.