What's already underway and a look at the projects that could go next

Oilsands Review — The oilsands slowdown that started in fall 2008 and stretched long into 2009 left hundreds of thousands of barrels of planned production in limbo—scheduled start-up dates fast became “TBDs,” work dried up, and people lost their jobs. But many are hopeful as the industry enters 2010, expecting a number of projects to come off the shelves and associated work to come back.

A prime example of course is Suncor’s resumption of Firebag Stages 3 and 4, projects that will each add 68,000 barrels per day to the company’s in situ production capacity in 2011 and 2012, respectively.

That Firebag will be the next major project to continue for the newly-merged company is not a surprise—but its $950-million 2010 budget announcement marks an important touchpoint for the industry. Indeed, president and chief executive officer Rick George says it “officially restarts the growth of the oilsands.”

But what of the other hundreds of thousands of barrels of planned new production taken off the table by the crushed-but-now stabilizing oil prices and global recession? Canadian Energy Research Institute (CERI) research director David McColl outlines the characteristics of projects that could be ready to go again.

“The necessary condition is that the company pushing the project has cash in the bank,” he explains. “Companies that are large, with money, they can go ahead.”

But McColl continues that potential project resumption is not exclusive to major players—rather, any company that could have started construction last year but instead deferred could be ready. Those with projects already approved or moving through the regulatory process should also be watched.

“Some of the little ones will still surprise,” he says, pointing to juniors that have recently completed financing such as Laricina Energy and Athabasca Oil Sands Corp. “It’s dangerous to ignore the little guys. They’re the ones that really put the oilsands on the map, so they’re going to go ahead too.”

What follows is an analysis of projects currently under construction, approved, or in the regulatory process.

Oilsands projects under construction

Oilsands projects with approval in hand

Projects under construction

In the next year, 178,000 barrels per day of new production is expected to come online, but one can also expect incremental production increases from projects that continue to ramp up to capacity.

Note for example Canadian Natural Resources Horizon, the existing phases of Suncor Firebag, Devon Jackfish, ConocoPhillips Surmont, Cenovus Foster Creek and Christina Lake, Nexen Long Lake, Connacher Great Divide, Husky Tucker, Shell Orion, and Meg Christina Lake Phase 2. These installations have yet to reach full nameplate capacity, offering significant opportunities for increased volumes in 2010.

Of those projects currently under construction some 85,000 barrels of production capacity are pegged to be added in 2011, with a further 100,000 barrels per day in 2012 thanks to Imperial’s Kearl mine.

Projects with approval in hand

More than one million barrels per day of both production and upgrading capacity have already received approval from Canadian regulators. However, it is obviously unlikely that a substantial portion of this will be sanctioned in 2010—especially the future phases of recently commissioned projects, and of course, the upgraders.

Due to narrow differentials between Canadian heavy oil and its lighter counterparts, it is unlikely that significant upgrading capacity will be added in Alberta in the near-term. However, industry analysts Raymond James recently offered some insight into which project will likely be next in the queue to go forward.

“Despite the plan to be long on bitumen, Suncor appears to have a positive outlook regarding the [suspended] Voyageur upgrader. Development plans for the project are at least a few years out, but the company [has] expressed openness to the idea of bringing in a partner to eventually complete the project,” the firm said in a recent research note. “Given that the project is approximately 55 per cent complete, we believe it makes sense Voyageur should be the next upgrader project constructed in Alberta.”

Raymond James continued that Voyageur would also likely provide the upgrading capacity required for the upstream section of Fort Hills.

As for Suncor’s recently acquired (and already approved) expansion of MacKay River and the new Meadow Creek SAGD installation, the company says it won’t be providing any sanction news beyond Firebag 3 and 4 until late 2010 at the earliest.

Of the approved projects, Husky Energy has made it known that it intends to sanction the first 60,000 barrel per day phase of Sunrise in 2010, and Laricina Energy says its Saleski carbonate demonstration project is “development ready.”

Petrobank has said it will not expand its Whitesands toe to heel air injection (THAI) pilot in the near term, opting instead to maximize its existing infrastructure.

It would appear that as far as the regulators are concerned, over one million barrels per day of new production is ready to be sanctioned. It will now be up to the companies with the financing and the will to go forward.

Projects going through the regulatory process—application filed

Many companies have gone through the preparation process and filed their project applications, work totaling almost 1.5 million barrels per day of potential new production capacity. That’s a lot of documentation for regulators to go through, but not everyone is pleased with the speed at which the process is taking.

“The [Energy Resources Conservation Board] and department of environment are somewhat slower in their application processing than most would like,” says Colin Outtrim, president of DeGolyer and MacNaughton Canada. “As such, we will not see any of the larger-scale projects reach approval for construction [this year], and what we will see will be mostly smaller-scale projects under construction in 2010 with production ramp-up occurring in 2011.”

Pre-construction front end work will proceed on some projects going through the regulatory process, including Canadian Natural Resources’ 45,000 barrel per day in situ project.

“Preliminary engineering [was] expected to commence is Q4/09,” said the company in its latest quarterly release. “Upon completion of the engineering, Canadian Natural targets sanctioning of the project in late 2010.”

As for those larger projects, one example of a venture moving through the regulatory process is Total E&P Canada. A first hearing regarding its Edmonton-area upgrader has been scheduled for February 2010. The company’s Joslyn application is also next in the queue, says Pembina Institute oilsands director Simon Dyer, and it is likely to face more opposition than those that went before it.

“There has been no major mine hearing since 2006,” he says. “The next mine in line is in the unfortunate position of being the next approval since vocal international [oilsands] opposition has begun to spread.”

Oilsands projects with application filed

The verdict for projects in 2010

Companies involved in major oilsands front-end engineering and design (FEED), as well as construction, are expressing cautious confidence about the next year for the sector, although noting that it will be characteristically different than in the past.

Jean Beaudoin, president of the chemicals and petroleum unit of Montreal-based engineering giant SNC-Lavalin Group says he sees signs that the oilsands is recovering from the downturn.

“I’m more optimistic than I was at this time last year,” he says. “At $75 to $80 [per barrel] the price is where it needs to be for the projects to proceed.”

Calgary-based engineering, procurement and construction management company Bantrel also expects to see a recovery start in the oilsands sector in 2010.

Mike Gordon, vice-president of business development for the company, says the recovery is likely to be characterized by a shift to bitumen-only in situ and mining projects. As a result, Gordon says it’s unlikely the engineering and design component of Bantrel’s business will ever be as strong as it was two or three years ago.

“We have established a new upstream business unit because we are seeing a move towards bitumen-only projects…projects are going out to bid, which is a positive. But we don’t see a rebound on the downstream side, in areas like upgrading.”

He says Bantrel, which designed Suncor’s first upgrader and has been involved in the design and maintenance of many upgraders and refineries in Canada, sees this as a trend that will last for several years.