Nexen idles Long Lake upgrader indefinitely and eliminates 350 positions
At a press conference on Tuesday morning, Nexen announced it will be reducing its head count by another 350 employees sometime this year. The move comes after the company confirmed it will not be restarting its Long lake upgrader due to a damaged hydrocracker unit. The upgrader was idled and placed into recirculation mode after last January's fatal explosion.
The Long Lake upgrader was considered a step-out technology when first commissioned in 2008. The upgrader uses OPTI's proprietary OrCrude™ technology which converts the liquid asphaltene by-product of the primary upgrader into hydrogen and fuel. The facility was the first large-scale gasification plant in Canada and first in the world to use gasification in conjunction with heavy oil recovery. The gasifier was supposed to reduce natural gas consumption and lower the upgrader's operating costs. Unfortunately, the facility was plagued by a series of operational issues and only averaged 30,000 bbl/day in 2015, less than half its nameplate capacity.
After reviewing several options for short-term repair, the company decided it would be better off shutting down the upgrader and selling heavy diluted bitumen produced from its SAGD operation. The upgrader will be placed into winter preservation mode. The company has delayed its maintenance turnaround to the spring of 2017 but has made no commitments as to when the upgrader would be returned into service. CEO Fang Zhi says the decision to shutdown the upgrader was strictly economic in light of the current low oil price environment. Zhi insists parent company CNOOC remains committed to Long Lake and the Alberta oil sands in the long term.
Production at the Long Lake thermal in-situ facility was disrupted during the May wildfires but is expected to ramp back up to 27,000 bbl/day sometime this summer. The fire actually passed right through the Long Lake site forcing a complete shutdown and evacuation of the facilities. Nexen's 150-man camp was damaged, along with some electrical infrastructure.
The company also announced the completion its independent investigation of last year's pipeline rupture. Nexen blames buckling that occurred when bitumen in the pipeline was allowed to cool down during a shutdown. The leak went undetected for almost a month, spilling about 30,000 barrels of oil along the pipeline corridor. The pipeline's leak detection software also failed to detect the leak. Complete details of the investigation have not yet been released to the public. The pipeline corridor where the spill occurred has since been fully remediated.
The Long Lake SAGD operation has a nameplate capacity of 72,000 bbl/day but was producing closer to 20,000 bbl/day prior to the wildfire shutdown. The facility had been operating on turndown mode after the Alberta Energy Regulator issued a suspension order last year due to non-compliance activities related to pipeline maintenance and monitoring. As a result of both the explosion and pipeline failure, Nexen has committed to improving their safety procedures and processes.
The recently announced 350 job cuts will be mostly at the upgrader but will also include head office staff in Calgary.