A bigger and better CNRL outlines plans for "capacity creep" at Horizon

A bigger and better CNRL outlines plans for "capacity creep" at Horizon

In their first quarter earnings release this week, Canadian Natural Resources (CNRL) provided its first glimpse into the company's new production numbers, reflecting output from the recently completed Phase 3 expansion at Horizon and its majority stake in the Albian Oil Sands Project (AOSP), purchased from Shell early last year.

SYNTHETIC CRUDE PRODUCTION

The Oil Sands Mining and Upgrading business units, which includes output from the Horizon and Scotford upgraders, averaged 456,076 bbl/day of synthetic crude oil (SCO) in the first quarter. That's more than double the same time last year and over 40% higher than the fourth quarter of last year, which included a major maintenance turnaround at Horizon.

For the second quarter, CNRL expects to average between 393,000 and 423,000 bbl/day of SCO, bringing full year output to a range of 415,000 to 450,000 bbl/day. Horizon has another 21-day maintenance turnaround scheduled for later this year.

CNRL owns 70% of Scotford, which is still operated by Royal Dutch Shell.

OPERATING COSTS

Operating costs were reported at $21.37 per barrel in Q1, down 14% from Q1/2017. The company did not breakdown operating cost differences between Horizon and Scotford, which have two very different upgrading technologies. Horizon uses delayed cokers, which produces a coke product and yields about 85%. Scotford is a considerably more complex hydrogen-addition facility, using LC-Fining technology with no loss of yield.

For the full year 2018, the company expects cash production costs, including maintenance turnarounds, to average between $20.50 to $24.50 per barrel, down $2/bbl from its previous forecast.

RELIABILITY ENHANCEMENTS AND "CREEP CAPACITY IMPROVEMENTS"

CNRL says it is evaluating various reliability enhancements and "potential creep capacity improvements" at its Horizon upgrader.

The company will complete detailed engineering for pump and piping modifications by the end of this year. The work will be implemented during a planned maintenance turnaround later this year, and is expected to improve reliability at the upgrader.

Feasibility work is ongoing for another stage of debottlenecking, potentially adding 5,000 to 15,000 bbl/day of SCO production. Early scoping work is also ongoing for expansion of the upgrader's Vacuum Gas Oil unit, potentially adding 10,000 to 15,000 bbl/day of additional capacity.

CNRL also says it has begun engineering work to add a Paraffinic Froth Treatment (PFT) expansion phase at Horizon's Bitumen Production facility, capable of producing 30,000 to 40,000 bbl/day of partially-deasphalted diluted bitumen (dilbit), similar to the dilbit produced at Imperial Oil's Kearl Lake facility and the newly completed Fort Hills Mine.

Horizon's existing froth treatment facility currently employs Naphthenic Froth Treatment (NFT) technology, similar to Suncor's Base Plant operations. NFT product is not marketable due to its high concentration of water and solids, and must therefore be processed through the upgrader before being shipped to market as a light/sweet crude. In contrast, PFT product is virtually water and solids-free, and can be pipelined to market after dilution with condensate or SCO. PFT product is heavy and sour, trading at a significant discount to SCO.

The company also says it is testing the production of stackable dry tailings through its In Pit Extraction Process pilot (IPEP) at the Horizon Mine. The project has the potential to reduce carbon emissions by reducing the usage of haul trucks, the size of the tailings ponds and accelerating site reclamation. CNRL adds that IPEP also has the potential to significantly reduce capital and operating costs.

CAPITAL SPENDING

The company has $1.38 billion in capital earmarked for its oil sands mining and upgrading business units, about $500 million dedicated to environment, technology and project development. The Phase 2/3 expansion program at Horizon is essentially complete with some scope related to Mature Fine Tailings management and mine basal water left to be completed.

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