CALGARY – Canadian Natural Resources (TSX:CNQ) is hitting the restart button on a thermal oilsands project it suspended nearly two years ago, counting on lower costs to shave $100 million from the original $1.45-billion price tag.
The Calgary-based company said Thursday it will move ahead with the half-built 40,000-barrel-per-day Kirby North project, starting with a $28-million engineering and procurement budget in 2017 that will focus on finding construction cost savings.
The project is the first new facility in the oilsands industry to be officially sanctioned since crude prices fell below US$100 per barrel in mid-2014 and was approved despite oil prices that have changed little since it was put on the shelf in January 2015.
The company said it had spent about $700 million on the project before it was halted and expects to spend $650 million more for a total of $1.35 billion.
“All of the equipment and all of the engineering has been done,” said president Steve Laut in an interview.
“So really now it’s all about execution, how we do the construction, put all the components together and drill all the wells. We feel very confident we will be able to drop the costs significantly.”
The project uses industry standard steam-assisted gravity drainage or SAGD technology, where steam is injected into a horizontal well to melt the sticky bitumen and allow it to drain into a lower parallel well to be pumped to surface. First steam is expected in the fall of 2019 and first oil in early 2020.
Kirby North was put on the shelf in 2015 as Canadian Natural reduced its spending budget for the year by $2.4 billion in view of benchmark New York oil prices that had fallen to about US$46 per barrel — close to current prices.
Analysts expect other stalled oilsands projects to be restarted soon.
Last week, Cenovus Energy (TSX:CVE) CEO Brian Ferguson said the company has asked contractors to resubmit bids for work on a 50,000-bpd expansion of its Christina Lake SAGD oilsands project that was put on hold in late 2014.
He said the company will provide information on when or if the project will be restarted when it releases its 2017 budget plan next month.
Canadian Natural’s capital spending commitments have been falling as it completes expansion phases at its Horizon mining and upgrading facility just north of Fort McMurray, Alta.
During the third quarter, it tied in major components of its 45,000-bpd Phase 2B expansion. It plans to spend $1 billion to complete Phase 3 by late 2017, adding another 80,000 bpd for total facility capacity of 250,000 bpd of upgraded crude oil.
A maintenance shutdown at Horizon that had to be extended for an extra week was blamed in part for third-quarter production and earnings that missed analyst expectations.
Overall production fell to 735,000 barrels of oil equivalent from 849,000 in the third quarter of 2015.
Canadian Natural announced Thursday a nine per cent quarterly dividend increase to 25 cents per common share starting Jan. 1.
Laut said the company had spent $120 million on “small, tuck-in property acquisitions” during the third quarter. The purchases were mainly in Alberta but did not include oilsands properties, he said.
The company increased its 2016 capital spending budget from a midpoint of $3.7 billion to $4.4 billion — about $300 million is to be spent to drill 190 additional oil and gas wells in Alberta and B.C.
Canadian Natural posted a net loss of $326 million or 29 cents per diluted share in the three months ended Sept. 30, compared with the year-earlier loss of $111 million or 10 cents per diluted share.
Product sales in the quarter totalled nearly $2.48 billion, down from almost $3.32 billion in the same quarter last year.
Its adjusted loss from operations rose to $355 million or 32 cents per diluted share in the quarter, versus an adjusted profit of $113 million or 10 cents per diluted share in the year-earlier period.
Follow @HealingSlowly on Twitter.
Note to readers: This is a corrected story. A previous version said Canadian Natural Resources’ loss for the quarter was more than three times bigger than the year-earlier loss.