May 14, 2008

Oil and Gas

Horizon oilsands construction project nears completion

Richard Gilbert

staff writer

Construction on Canadian Natural Resources Limited’s Horizon oilsands project is nearly complete, as the company moves towards the production of oil in the third quarter of 2008.

Canadian Natural Resources (CNR) released a quarterly financial report on April 30, which provides an update on the progress of the Horizon oilsands project.

The company has almost completed construction on the project, despite cost over-runs and reduced productivity on the construction site due to cold weather.

Start up and the production of synthetic crude oil is scheduled for the third quarter of this year.

“At the end of the first quarter, capital spending on Phase 1 of the Horizon project was at 111 per cent of the original budget of $6.8 billion,” said the report.

“Looking forward to completion, targeted for the third quarter of 2008, we currently anticipate capital spending on Phase 1 construction to be within the previously announced range of 25 per cent to 28 per cent above the original budget.”

CNR reached an overall 94 per cent completion at the end of the first quarter of 2008. The company hired 89 per cent of the required personnel, finalized all their maintenance contracts and mobilized all supervision on site.

“We are prepared to start up the plants and have received on site the 190,000 barrels of diluent for start up. Once we have completed commissioning and begun operations, it is anticipated that ramp up to full production will occur over a 3 to 4 month period,” explained the report.

“We are targeting to be at 85 per cent design capacity by year end 2008. Full capacity is anticipated to be achieved during the first quarter of 2009 as planned.”

The sales pipeline which will transport production from the site to Edmonton is on track for completion in the second quarter of 2008.

About 750,000 barrels of synthetic crude oil from initial production volumes will be used to fill the pipeline.

“It is an exciting time for the Horizon project as we methodically progress towards first oil targeted for the third quarter of 2008,” said Réal Doucet, senior vice president, oilsands.

“In the first quarter, mine production commenced operations, using our mine operators and equipment to work on the overburden removal. This is the second area of the Horizon project where we have begun operations, with water systems being the first.”

Canadian Natural Resources released their last financial report on Feb. 12. , which stated the project was 90 per cent complete at the end of 2007.

However, the remaining 10 per cent would be the toughest part of the project, because it is the most labour intensive portion.

In mid to late January and early February the project experienced a significant deterioration in labour productivity as workers on this project experienced a cold snap that caused temperatures to drop to -40 C.

The financial report said a thorough review of productivity at the Horizon project construction site was undertaken.

The report warned that cold weather could boost the cost of Phase 1 well over original estimates.

The forecasted total cost of the Horizon project was $ 6.8 billion.

On Dec. 31, 2007, the estimated total cost for the project was 13.4 per cent ($900 million) more than the $6.8 billion board of director’s authorized.

If no improvements in productivity were achieved through the remainder of construction, the report estimated the cost for Phase 1 of the Horizon project would need to be increased to 28 per cent above the original $6.8 billion board authorization ($1.7 billion).

If productivity is regained, the report estimated that this cost over-run could be reduced to approximately 25 per cent above the original $6.8 billion board authorization ($1.9 billion).

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