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Oilsands executives say activity upswing different this time around

CALGARY — Major oilsands executives told a conference Wednesday that they don’t see the latest upswing in activity leading to the same red-hot cost inflation they grappled with before the 2008 financial meltdown.

CALGARY — Major oilsands executives told a conference Wednesday that they don’t see the latest upswing in activity leading to the same red-hot cost inflation they grappled with before the 2008 financial meltdown.

“I’m not saying that you can relax. You can never relax on this issue. It just feels slightly different to me than the last cycle,” said Rick George, Suncor Energy Inc.’s chief executive officer.

Suncor (TSX:SU) — Canada’s biggest energy company and dominant oilsands player — eliminated a lot of the inflationary pressure itself by gobbling up Petro-Canada in 2009 and landing a joint-venture deal with the Canadian division of French energy giant Total SA the following year.

“As little as three years ago — 36 months ago — there were three major companies all pursuing their own mines, their own upgraders. That is Suncor, Petro-Canada and Total,” George told the TD Securities Unconventional Energy Conference.

“Instead of all three of us competing on engineering and construction and equipment, we can make a more practical approach in terms of smoothing out the peaks and valleys of our needs, for not just materials, but labour as well.”

As it ramps up construction of its new oilsands projects, Suncor will award contracts in more “bite-sized” chunks, do as much engineering work as possible before shovels hit the ground and keep its labour force on-site at a more manageable level than the last time around.

It will also avoid getting too wrapped up in set schedules.

“I’ve got the scars on this one. Trust me,” George said.

Cenovus Energy Inc. (TSX:CVE), whose flagship assets are the Foster Creek and Christina Lake steam-driven developments south of Fort McMurray, Alta., has brought much of its construction activities in-house.

Chief operating officer John Brannan said there have been only a few minor fixes necessary to equipment constructed at its own module yard near Edmonton.

“By doing things right at the fabrication yard, you’re really reducing your overall time and installation costs in the field,” Brannan told the conference.

New technologies, like wedge-wells and bitumen-softening solvents, are expected to reduce supply costs per barrel by $10 to $15, he added.

For U.S. firm Devon Energy’s (NYSE:DVN) Canadian arm, a major way to keep costs down is to focus on the best-quality reservoirs from the get-go.

“You need to be in the right neighbourhood, and we think we are,” said president Chris Seasons.

“Fundamentally you can’t change the rocks. You can do whatever you want on the surface, but you can’t change the rock quality.”

He also said that it’s crucial to make the best use of facilities the company has already built.

“If you look at the industry as a whole, we have not been terribly effective at utilizing the plants that we’ve built to date. I think on average, when you look at all the projects out there, we’re running at about 60 per cent of design capacity. So there’s a lot of room for improvement.”