Connacher restarts Algar oilsands project

CALGARY - Activity in Alberta's oilsands continues to pick up despite crude oil prices sliding toward the $60 US a barrel mark, indicating continued and growing optimism on industry economics.

On Tuesday, Connacher Oil and Gas Ltd. put boots to the dirt -- or better said, mud -- again at its 10,000-barrel-per-day Algar thermal oilsands project, which had work suspended in December on plummeting oil prices and tight credit markets.

The company was able to resume construction of the $345-million steam-assisted gravity drainage facility after completing a $200-million debt offering in mid-June, and expects to be running at capacity by the end of 2010.

"The piledrivers are on site, and away we go," said an enthusiastic Dick Gusella, Connacher president and chief executive. "The dirt's kicked up."

Much of the site had been prepared for construction in the winter, but forest fires last month and then torrential rains delayed the restart, Gusella said.

The fact the small producer was able to secure financing is itself a positive indication that capital markets are improving, analyst Lanny Pendill said.

Improved oil prices, lower negotiated labour and materials costs, and more open capital markets have helped the oilsands, but not to the point of being back in the boom times, Pendill said.

"I think we're pretty much on the cusp," he said. "We've seen one major player, Imperial Oil, move forward, and if oil prices hold at the levels that they are at, or higher, then I would look to some of the other large players to start talking about bringing some of these other jobs back into focus."

Last month, Calgary-based Imperial said it was taking its 110,000-barrel-per-day Kearl oilsands mine project off the shelf and into the board room. The$8-billion project was the first major development to be announced since more than a dozen oilsands projects were delayed or cancelled last year due to poor economics.

Engineering and construction firm Fluor Corp. said Tuesday it had secured a $1.5-billion US contract with Imperial Oil to build the infrastructure and facilities for the first phase of the project.

Kearl would be Imperial Oil's third oilsands investment. The corporation, 69.9 per cent owned by ExxonMobil Corp., has a 25 per-cent stake in Syncrude Canada Ltd., the world's largest oilsands producer, and operated the Cold Lake oilsands project, which produces about 150,000 bpd.

"Essentially, $60 a barrel oil is what will make a lot of these projects go around again," said William Lacey, analyst with FirstEnergy Capital Corp. "That is, assuming you have the financial flexibility to go ahead."

Connacher raised money and reduced its debt, and Imperial, which has no debt, has the flexibility, he noted.

"Capital costs have gone down a bit, and accessibility to skilled trade has increased," Lacey said. "Debt markets have opened, and you've got companies like Talisman Energy Inc., Husky Energy, and Canadian Oil Sands raising debt under eight per cent."

The current slide in oil prices into the low$60s was expected after the sudden rebound in price without noticeable increase in demand, he noted.

Back at Algar, Connacher expects construction and ramp-up activities to be completed by late 2010 at a cost of $200 million. The company already has invested $150 million in the second phase of its Great Divide oilsands plant.

Connacher's primary upstream production of 8,000 bpd is from its Great Divide Pod One plant.

At the peak of the Algar construction, about 260 people will be working on the site, Gusella said.

The company expects to reach production of 50,000 barrels per day from its Great Divide oilsands project by 2015.

DOMEARA@THEHERALD. CANWEST.COM

http://www.calgaryherald.com/business/energy-resources/Connacher+restarts+Algar+oilsands+project/1770189/story.html