Canadian Natural Achieves Significant Milestone with Horizon Project

Horizon oil sands ore preparation plant
(Click to Enlarge)

Canadian Natural Resources Limited has provided its regular quarterly update on the Horizon Oil Sands Project.

Steve Laut, President and Chief Operating Officer, commented, "Canadian Natural has achieved a significant milestone as we proceed with the final construction, commissioning and staged start-up of the Horizon Project and begin to realize the benefits of the largest single capital project in Canadian Natural's history. The start-up of the Horizon Project is a major step for Canadian Natural. We continue to evolve and diversify our asset base and look forward to the continuous stream of cash flow for years to come. The result is a stronger and more sustainable company."

In Q2 and Q3 to date, Canadian Natural has begun the staged start-up of the Horizon Project. There are seven stages to the start-up of the Horizon Project and the associated targeted start-up dates are as follows:

Stage 1 - Mining

- The mining operation has been ready for operation since May, and continues to move overburden. The mining team awaits the call for first oil sands delivery.

Stage 2 - Steam Supply

- The utility plants have been supplying low, medium and high pressure steam in stages, with the last steam (high pressure) delivered in the third week of July for testing and commissioning purposes.

Stage 3 - Bitumen Crude Oil Production

- The Bitumen Crude Oil Production operations are in the final stages of commissioning with first bitumen crude oil production targeted for early September.

Stage 4 - Electricity Generation

- The Co-generation Plant is targeted to deliver full load electricity in the second half of September.

Stage 5 - Sulphur Plant/Sour Gas Treating

- The Sulphur Plant is targeted to be ready to receive sour gas feed mid-August and circulate amine, awaiting the first delivery of sour gas.

Stage 6 - Partially Upgraded Crude Oil Production

- The Delayed Coker/Diluent Recovery Unit Plants are in the commissioning stage concurrent with the completion of final task lists (i.e. punch-lists) and are targeted to deliver partially upgraded crude oil to intermediate tanks by the end of September.

Stage 7 - 34 degrees API, Light Sweet Synthetic Crude Oil Production

- The Naphtha Hydrotreating Plant (Unit 41) is completing loop checks and insulation concurrent with commissioning. First product output is currently targeted for October.

- The Gas Oil Hydrotreating Plant (Unit 43) is completing punch-lists, loop checks, electrical heat tracing and insulation concurrent with commissioning. First product output is currently targeted for the fourth quarter of 2008.

- First, 34 degrees API, light sweet synthetic crude oil ("SCO") in the sales pipeline is currently targeted for the fourth quarter of 2008, with estimated capacity of 70,000 bbl/d, meeting our scheduled product ramp-up.

- The Distillate Hydrotreating Plant (Unit 42) is finishing mechanical completion and completing electrical heat tracing, insulation and loop checks. First product output is currently targeted for the latter part of the fourth quarter of 2008. Estimated capacity will be at 110,000 bbl/d of 34 degrees API, light sweet SCO upon plant completion of Unit 42, ramping up production to facility capacity and maintaining our previous production ramp-up schedule.

Real Doucet, Senior Vice-President, Oil Sands, further commented, "During the second quarter of 2008 we completed a majority of the pre-commissioning activity, commissioned another shovel and 12 more trucks in the mine, brought on the Utilities (air, water, steam, power and natural gas), and commenced operating several of the Bitumen Production plants on water as a "wet run" before we introduce oil sands. As planned, we are staging our start-up of the Horizon Project by getting the mine and front end plants commissioned, operational, and methodically moving through each step to produce SCO. We are finding the Pre Start-Up Safety Reviews are taking longer to complete than originally anticipated, however, we are remaining disciplined and will not put our employees, contractors or facilities at risk.

"We made significant progress but we have found that testing and closing all safety and operations punch-lists are taking us a little longer than expected. We turned over 42% of the over 800 plant systems to operations at the end of the second quarter of 2008. A high level overview of progress by major plant facility at the Horizon Project is as follows:

- Mining - Completed, ready to mine oil sands and continues to move overburden

- Ore Preparation Plant - Completed, targeted to receive first oil sands in August

- Hydrotransport - Completed, ready to accept slurry

- Piperack - Completed, live and operational

- Extraction - Completed, ready for operation

- Froth Treatment - Targeted to be complete by August

- Delayed Coker/Diluent Recovery Unit - Commissioning well underway

- Hydrogen Plant - Completed, turned over to operations

- Hydrotreaters - Units 41 and 43 completing loop checks, Unit 42 encountering some scheduling issues.

- Co-generation - Completed, producing steam

- Sulphur Plant - Completed, turned over to operations

- Tankage - Completed, ready for first oil

- Main Control Room - Completed, live and operational

- Utilities & Services - Completed, live and operational

- SCO Pipeline (third party owned and operated) - Completed, ready to accept product with terminaling facilities in Edmonton arranged.

"We continue to face many challenges, the critical path item being the completion and turnover of all three Hydrotreating Plants (Units 41, 42 and 43) in a small window. Our Distillate Plant (Unit 41) and Gas Oil Hydrotreater Plant (Unit 43) have encountered delays and schedule slippage resulting in commissioning beyond the third quarter. Our operations team has developed an overall start-up scenario for initial operation at approximately 60% of design rate until the Distillate Hydrotreating Plant is commissioned to mitigate any impact to our overall production ramp-up.

"After our thorough monthly review in the second half of July 2008, it was determined that we are experiencing schedule slippage with the Upgrading/Hydrotreating Plants and it is taking longer than planned to complete testing, reinstatement and pre-commissioning activities of these plants. A detailed review of our current cost estimate indicates that the Horizon Project targeted final cost will increase by approximately 8% or approximately $525 million above our previous construction cost estimates bringing the total cost estimate of the Horizon Project to approximately 36% above our original 2004 $6.8 billion estimate, or approximately $9.27 billion (up from the previous total cost estimate of $8.74 billion). This increase will result in a targeted on-stream cost of $84,000 bbl/d of capacity, including the benefits of the significant pre-build capital invested for Phase 2/3.

"While our primary focus is completing Phase 1 and producing SCO, we have a team working on future expansions of the Horizon Project. We have several major long lead items for Phase 2/3 expansions on site, including the coke drums and hydrotreating reactors. The reactors have been assembled on site and hydrotested. We have awarded nearly all the Engineering (detailed design) and Procurement contracts for the Tranche 2 scope of the Phase 2/3 expansion and have held kick-off meetings with the majority of the contractors."

Real Doucet added, "As a final note, we are managing to meet our commitment to safety and celebrated over 20 million manhours without a lost time incident - more than one year - during the second quarter of 2008. Along with systems and start-up training for a significant number of staff, we have completed our 'Going Live' safety orientation for all Horizon Project employees and contractors. The Pre Start-Up Safety Reviews have been initiated in all plants and the learnings from earlier system turnovers are being applied."

Accomplished to the end of the Second Quarter of 2008

- Overall construction progress is 96.5% complete.

- Mine overburden removal has moved 67.6 million bcm (bank cubic meters), representing approximately 97% of the total required to be moved prior to start-up. We are using our own forces for overburden removal along with contractor fleet.

- In Mining, 4 of our 5 large excavators, 16 of 23 heavy haul trucks and all of our support equipment are operational.

- Completed flow through Dyke Construction in Mining.

- Main Control Room turned over to Operations.

- Completed all hydrotests, blows and flushes in Gas Treating and Sulphur Recovery.

- Introduced water to the Extraction plant in April.

- Completed piping in Delayed Coker/Diluent Recovery Unit area.

- Completed Piping, Electrical and Insulation in Piperacks.

- Produced first steam in Co-generation Plant.

- Completed construction of Tank 2 and began filling with distillate for start-up.

Milestones targeted for the Third Quarter of 2008

- Mining of first oil sands.

- Complete remainder of Ore Preparation Plant and start-up.

- Complete commissioning of Extraction and Froth Treatment and produce first bitumen crude oil.

- Complete and commission Flares and Hydrogen Plant.

- Complete construction and start commissioning Delayed Coker/Diluent Recovery Unit and Sulphur Plant.


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