HEAVY OIL UPGRADER CONSIDERED FOR ALBERTA

Oct. 28, 1991
Imperial Oil Ltd. is considering construction of a heavy oil upgrader in northern Alberta with a price tag of as much as $3 billion. The project would be tied to heavy oil operations at Cold Lake, Alta., by Imperial unit Esso Resources Canada Ltd. A company spokesman said an upgrader is a possible alternative to the proposed $4.5 billion OSLO oilsands project in the Fort McMurray region. Esso is lead partner in that project. Recent studies showed OSLO would not be economic at current oil

Imperial Oil Ltd. is considering construction of a heavy oil upgrader in northern Alberta with a price tag of as much as $3 billion.

The project would be tied to heavy oil operations at Cold Lake, Alta., by Imperial unit Esso Resources Canada Ltd.

A company spokesman said an upgrader is a possible alternative to the proposed $4.5 billion OSLO oilsands project in the Fort McMurray region. Esso is lead partner in that project.

Recent studies showed OSLO would not be economic at current oil prices until 2000 or later.

Meantime, Petro-Canada has sold a 5% interest in the Syncrude Canada Ltd. oilsands plant in northern Alberta to a unit of Japan's Mitsubishi group. Sale of the interest in the Fort McMurray operation to Mitsubishi Oil Co. Ltd. for $132.5 million (Canadian) leaves Petro-Canada with a 12% holding in the plant.

COLD LAKE PRODUCTION

Imperial Chairman Arden Haynes said market conditions appear favorable to expand Cold Lake heavy oil production. He noted the price spread between light and heavy oil has narrowed to about $8.50/bbl from $11.

Cold Lake production is about 80,000 b/d, and an increase to 100,000 b/d is under consideration for 1992. Increased productive capacity was added in 1988 at Cold Lake, but it was mothballed for lack of heavy oil demand.

Haynes said new U.S. refinery capacity over the next several years is expected to increase demand for Canadian heavy oil by more than 100,000 b/d. Most Canadian heavy crude production is exported to U.S. refineries.

The Imperial executive said a final decision on expanding Cold Lake production will be made by the end of 1991. Haynes said an upgrader project would require favorable fiscal terms from the Alberta and Canadian governments.

Husky Oil Ltd., Calgary, said agreement has been reached to cover as much as $175 million in cost overruns on its $1.27 billion heavy oil upgrader at Lloydminster, Sask. The company said it hopes only $100 million will be needed.

Husky said the overrun was due to increased labor and equipment costs. The additional cost is to be covered by Husky and the federal, Alberta, and Saskatchewan governments, which are partners in the project.

The upgrader, with capacity to produce 46,000 b/d of light crude, is scheduled to go on stream late in 1992.

PETRO-CANADA SALE

Petro-Canada's sale of the interest in Syncrude is the latest move in a program by the Canadian state oil company to go private and improve its balance sheet. Earlier this year, Petro-Canada sold 19.5% of its shares in a public issue. Additional share sales are planned by Ottawa, which wants the company privatized.

The Mitsubishi companies also own a 45% interest in a $1.3 billion pulp mill project in Northern Alberta and a 20% stake in th Iron Ore company of Canada.

A Mitsubishi spokesman said the company plans to trade its share of synthetic crude oil production from Syncrude for production from Southeast Asia and the Middle East. Mitsubishi's share of Syncrude production will be about 10,000 b/d during a 20 year period.

Syncrude, operated by a combine of Canadian companies,produces about 165,000 b/d of synthetic crude from bitumen at an average cost of about $16/bbl. Syncrude has been working to reduce that cost.

Petro-Canada plans to continue to seek buyers for some of its remaining interest in Syncrude. Prior to the sale to Mitsubishi, Petro-Canada valued its 17% holding in Syncrude at $452 million. That was after a $138 million writedown earlier this year.

Other owners in the Syncrude group are Esso Resources Canada Ltd. 25%, the Alberta government 16.74%, Alberta Energy Ltd. 10%, PanCanadian Petroleum Ltd. 10%, Gulf Canada Resources Inc. 9.03%, Canadian Occidental Ltd. 7.23%, and Amoco Canada Ltd. 5%.

Copyright 1991 Oil & Gas Journal. All Rights Reserved.