Imperial Oil approves Kearl oilsands expansion

CALGARY — Imperial Oil Ltd. said Wednesday it will go ahead with an $8.9-billion expansion to its Kearl oilsands mine north of Fort McMurray— a major component of the energy giant’s growth plans.

CALGARY — Imperial Oil Ltd. said Wednesday it will go ahead with an $8.9-billion expansion to its Kearl oilsands mine north of Fort McMurray— a major component of the energy giant’s growth plans.

The second phase of the project is slated to begin producing 110,000 barrels of oil per day by late 2015, the Calgary-based oil producer and refiner (TSX:IMO) said in a statement.

“The Kearl expansion project is a key element of Imperial’s plan to double its production to approximately 600,000 oil-equivalent barrels per day by 2020,” the company said in a statement.

Construction on the first phase of Kearl, which will also have initial output of 110,000 barrels per day, is 80 per cent complete and is expected to start up about a year from now.

Imperial had initially planned to build Kearl in three phases, but changed its plans earlier this year to instead build the mine in two phases, with smaller projects along the way to boost output in increments.

The move meant the price tag of the first phase rose from $8 billion to $10.9 billion, reflecting the fact that the company is investing in equipment now that it won’t have to later on.

Both phases are expected to produce 145,000 barrels per day after so-called “debottlenecking” projects to unlock spare capacity from existing plants.

By around 2015, Kearl should be producing 290,000 barrels per day, hitting 345,000 barrels per day by 2020 with further improvements to the operations.

When Imperial’s board of directors approved the first phase of Kearl in the spring of 2009, it expected costs to be around $5 per barrel.

Costs have since risen to $6.20 per barrel, partly due to a move by Alberta’s energy regulator, called Directive 74, to force oilsands miners to clean up their tailings ponds.

Tailings — a mixture of sand, clay, water and residual bitumen — are a byproduct of the oilsands extraction process and have drawn a great deal of concern for their environmental impacts. In order to reduce tailings faster, miners have had to make design changes to their mines and, in some cases, invest in new equipment.

“What we’re building today is different from what we originally envisioned,” said Imperial spokesman Pius Rolheiser.

“Industry, government, regulators — everyone agrees that industry needs to do a better job of managing tailings.”

But there are “real and significant costs” associated with that, Rolheiser added.

In constructing its first phase of Kearl, Imperial has run into problems transporting enormous modules imported from South Korea through the United States to the mine site in northern Alberta.

The company originally planned to ship the equipment from the river port of Lewiston in Idaho, along U.S. Highway 12 into Montana, then up the Montana 200 and other two-lane roadways to the Canadian border. The proposed route was met with fierce opposition from residents, conservation groups and local governments.

Last month, the company applied to the Montana Department of Transportation for permits to transport about 300 smaller versions of the megaloads to Alberta via interstates 90 and 15, according to transportation officials.

It’s too soon to say whether those headaches will cause Imperial to procure or transport modules any differently for Phase 2 of Kearl, said Rolheiser.

Currently two-thirds of the loads have moved from Lewiston, and more are waiting at the port of Pasco, Wash.

“We anticipate that we will have all the equipment to the Kearl site by the time it’s needed in order for us to conclude construction and startup by the end of 2012,” said Rolheiser.

Imperial owns 71 per cent of Kearl, with its U.S. parent, ExxonMobil Corp. (NYSE:XOM), controlling the rest.

Imperial’s other oilsands holdings include vast steam-driven operations at Cold Lake and a 25 per cent interest in the Syncrude mine, the world’s largest oilsands project.

Imperial Oil also runs a chain of Esso-branded fuel stations across the country, as well as refineries in Alberta and Ontario.

Imperial shares rose 28 cents to $43.35 in afternoon trading on the Toronto Stock Exchange.