Netbacks at Fort Hills remain challenged, but still positive (barely)
In its third quarter earnings release this week, Teck Resources says the new Fort Hills Mine continues to exceed expectations, both in terms of production volumes and product quality.
Teck has a 21.2% stake in the mine, which started up at the beginning of this year, owned jointly with Total and operator Suncor Energy.
Unusually wet weather dented production in June and July, limiting the mine's ability to remove overburden. However, Teck says significant improvements were made in August and September, bringing third quarter production to an average of 128,620 bbl/day.
Fort Hills underwent a planned maintenance turnaround in September, but managed to run at nameplate capacity for two days during the month. The company says it expects a "strong" performance in the fourth quarter, with no significant maintenance scheduled for the rest of the year.
Fort Hills has a nameplate capacity of 194,000 bbl/day of bitumen, using Paraffinic Froth Treatment (PFT) technology to remove some of the heavy asphaltenes in the bitumen. Product is blended with condensate to produce a heavy oil blend marketed as the Fort Hills Reduced Carbon Life Cycle Dilbit Blend (FRB).
With Western Canadian Select prices hovering at about US$40 a barrel in Q3, Teck eked out a netback of $1.89 a barrel (CAD). Those figures include $2.90 in crown royalties, $9.58 in transportation costs and $39 in operating costs. Teck says operating costs are expected to decline to about $30 a barrel by the end of the year, eventually targeting a number below $20.
Teck ships product from Fort Hills to the US via Enbridge’s Mainline and TransCanada's Keystone pipeline to the Gulf Coast. However, given significant congestion on both export pipelines, the company is working on boosting its capacity to export product by rail, potentially as early as 2019. Teck also has a 400,000 barrel storage tank at Hardisty, allowing it to wait out short term pipeline constraints.