Petro-Canada’s oil sands venture spend may double

CALGARY: Petro-Canada, the third-largest Canadian oil company, and partners may spend C$10.5bn ($9.3bn) on the first stage of a planned oil-sands project in northern Alberta, double what was originally planned.

Spending would soar because of a possible increase in the size of the project and higher labor and equipment costs, said Wayne Bobye, chief financial officer of Calgary-based UTS Energy Corp, a partner in the Fort Hills oil-sands project.

"I think everybody is in the same situation’’ with rising labor and equipment expenses, Bobye said today in a telephone interview.

The partners are considering expanding the project to increase production capacity to 170,000 bpd of bitumen, a heavy crude oil, up from the originally planned 100,000 bpd, Bobye said.

A further expansion might increase the project’s cost to C$15bn, he said. The bitumen will be processed by a refinery-like plant into synthetic crude, which can be refined into gasoline, diesel and other fuels.

A surge in oil prices prompted a boom in development plans for Alberta’s oil-soaked sands, estimated to contain the largest oil reserves outside the Middle East, increasing costs for labour and equipment.

Oil prices are likely to stay high enough in coming years to justify the higher cost of oil-sands projects, said Ari Levy, who oversees about C$560mn at TD Asset Management in Toronto including shares of UTS and Petro-Canada. TD Asset is a unit of Canada’s Toronto-Dominion Bank.

"The rewards, as we see them now, outweigh the risks,’’ Levy said in an interview. "The opportunities are certainly there.’’

On July 28, Shell Canada Ltd said the cost of a planned 100,000 bpd expansion of an oil-sands project may reach C$12.8bn, more than triple an original estimate of C$4bn and up from an estimate of C$7.3bn a year ago.

Calgary-based Enerplus Resources Fund has said first production from its oil-sands project with Total SA may be delayed until 2013 from a previously planned startup of 2010-2011 because of "pressures from a significant number of competing projects.’’

Petro-Canada, which owns 55% of Fort Hills and will operate the development, is scheduled to release a revised cost forecast in the fourth quarter, Bobye said. – Bloomberg