Construction of the first 10,000 barrel per day phase of the project will begin immediately and is scheduled for completion in mid 2007. First production from the project is expected near the end of 2007. Phase Two of the project is an additional 10,000 barrels per day and anticipated to commence construction in 2008.
The Orion SAGD Project is expected to recover approximately 190 million barrels of bitumen over a 30 - 35 year project life.
BlackRock has completed the detailed engineering design and has pre-ordered a significant portion of the equipment for Phase One of the project. Total capital costs for both phases of development are anticipated to be approximately $340 million, with costs for Phase One estimated at approximately $225 million and Phase Two costs currently estimated at $115 million. Phase One costs are higher than our earlier estimate of $150 million. The increase is a result of:
(i) Increasing the scope of work during Phase One to include certain costs related to Phase Two. Incurring costs now will allow us to take advantage of certain design and cost efficiencies which can be captured if the work is done during Phase One construction, as well as providing us with the opportunity to accelerate Phase Two construction; and
(ii) Inflation and increased cost pressures as a result of a high level of industry activity.
BlackRock has always maintained a strong balance sheet which provides the Company with some flexibility to finance large projects such as Orion. We plan to use our current working capital and anticipated cash flow generated from our existing operations to fund a considerable portion of the Orion expenditures. We are also evaluating various alternatives, including utilizing some form of debt, to fund a portion of the Phase One capital costs. Free cash flows generated from Phase One of the project should be sufficient to finance the second phase of the project.
John Festival, President of BlackRock, commenting on the announcement indicated that "receiving approval to develop the Orion lease is a major step in our path to reaching our production objective of 40,000 barrels of oil per day over the next five years. We have been operating a successful pilot for over eight years and we are very excited to move the project to the commercial stage. The Orion oilsands lease was the first oil and gas property BlackRock owned and it provides a great deal of personal satisfaction to see many of our long-term shareholders finally see the potential of this property realized".
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