Delays raise Long Lake oil sands project costs

Sept. 4, 2007
Nexen Inc. said labor problems have delayed construction and start-up at the Long Lake oil sands development 200 miles north of Edmonton, Alta.

By OGJ editors
HOUSTON, Sept. 4 -- Nexen Inc. said labor problems have delayed construction and start-up at the Long Lake oil sands development 200 miles north of Edmonton, Alta. and increased the project's capital cost by 10-15% above the previous forecast of $5.3 billion.

Nexen said the sulfur recovery unit is now slated for completion in first quarter 2008 because of lower than expected labor productivity and difficulties securing sufficient labor, particularly pipefitters, to work on the sulfur recovery unit, said Charlie Fischer, Nexen's president and chief executive. The pace of commissioning activities also is slower than expected, he added.

However he said the work is almost complete, and the company expects to have sufficient laborers for all remaining activities.

Progress on other units of the upgrader also has been slower than expected. Completion of the hydrocracker, the OrCrude unit, and all main plant utilities are expected in the third quarter of this year and the gasifier and air separation units, in the fourth quarter.

Commissioning has commenced on the utility steam boilers, with start-up expected during the third quarter.

Full start-up of the upgrader is now expected to begin in the first and second quarters of 2008.

Commissioning and start up of the steam-assisted gravity drainage (SAGD) plant and wells is under way. The company currently is injecting steam into 4 of the 10 well pads and expects to be steaming all well pads by the end of September.

"SAGD performance at Long Lake is as expected or slightly better, and we expect bitumen production to ramp up to full rates over the next 12-24 months" Fischer said.

Production of synthetic crude oil is expected late in second-quarter 2008. The company expects the upgrader to reach full production capacity 12-18 months after start-up.

"We expect to produce synthetic crude oil at Long Lake for several decades and benefit from a significant operating cost advantage," Fischer said. Despite the increase in capital costs, "project returns from Long Lake at current commodity prices are higher than [was] expected at the time of sanctioning."