Canadian Natural Resources To Develop Oil Sands Project Alone

Canadian Natural Resources Ltd. has decided to build and operate its huge Alberta oil sands project on its own despite the hefty capital cost and earlier plans to bring in partners, its chairman said in a statement. Canadian Natural, the country's fourth-largest exploration and production firm, has not fully ruled out offering a stake in its Horizon oil sands development to another company, but chairman Allan Markin said his firm had the financial wherewithal to go it alone and hoped it could do so with in-house expertise.

The proposed project, located north of the oil sands hub of Fort McMurray, Alberta, carries a total price tag of C$8.5 billion ($5.3 billion). Under current plans it would start up in 2007, eventually producing 300,000 barrels of synthetic oil a day.

The plan differs from Shell Canada Ltd.'s 155,000 barrel a day Athabasca oil sands project, expected to be completed late this year. Before giving the go-ahead, Shell searched for a partner with mining expertise, and signed a preliminary deal with BHP Billiton. BHP decided not to go ahead with the development, but several staffers stayed on to join start-up Western Oil Sands, which now has a 20 percent stake. ChevronTexaco Corp. also owns a 20 percent interest.

Canadian Natural has hired staff from oil sands developers Syncrude Canada Ltd. and Suncor Energy Inc. instead of seeking mining expertise through a joint venture, Markin said. The remaining question mark is in the refining and marketing of the synthetic crude supply, and that could result in a partnership deal. But it is not the preferred option, he said.

The company expects to file its development application with regulators in June. The plans include producing 100,000 barrels a day by mining oil sands on one part of its lease by 2007, then another 200,000 by pumping tar-like bitumen in another area to the surface with the aid of steam injected into the ground.

The first C$4.9 billion phase would be project financed, and the remainder would be funded from the development's own returns. Markin said he was well aware of major cost overruns last year that hit two of his competitors, Suncor and Shell, as they raced to complete oil sands projects at the same time, causing a squeeze on skilled labor.

Shell Canada's costs for its project jumped by 33 percent above original estimates, while Suncor, whose Project Millennium expansion started running at the end of 2001, suffered a 70 percent overrun from the original budget. If Canadian Natural starts construction as planned in 2004, it could be competing for labor with such projects as Fort Hills, operated by Koch Industries unit TrueNorth Energy, as well as new expansions of the Syncrude and Suncor operations.

"It looks difficult, but it's all a matter of timing. I don't think it will be as difficult as it is today with more and more people learning how to do it," Markin said. "We're going to push hard to do it at the right time. I mean, we don't have a gun at our head. We've got the time -- it is five years away, so we've got a little bit of flexibility."