Imperial turns a corner at Kearl and posts record production in Q3

Imperial turns a corner at Kearl and posts record production in Q3

Imperial Oil reported much better than expected results for the third quarter of this year, appearing to have put its reliability headaches and regulatory delays in the rear-view mirror.

KEARL FINALLY HITS THE MARK

After running below design capacity for several years, the Kearl Oil Sands Mine averaged a record 244,000 bbl/day in Q3. The company says planned turnaround activity on one of its trains dented production by about 14,000 bbl/day. The turnaround was completed in mid-October, bringing Kearl's average production to 202,000 bbl/day for first nine months of this year. 

 

AVERAGE BITUMEN PRODUCTION AND RECOVERY AT KEARL (DATA FROM AER)

 

Kearl has a nameplate capacity of 220,000 bbl/day, but hasn't been able to sustainably hit those numbers due to reliability issues on the front end of its bitumen extraction process. The company has since added redundancy to its crushing plant, improved the design of its dump hoppers and conveyors, and installed slurry piping interconnections. The improvements, which are expected to continue through the end of next year, come at an estimated capital cost of $560 million. Once completed, nameplate capacity should be bumped up to 240,000 bbl/day.

Imperial says it would eventually like to get "all-in" operating costs to US$20 a barrel, but did not disclose figures for this most recent quarter.

Imperial Oil owns 71% of the Kearl Mine, with the remaining 29% owned by parent-company ExxonMobil.

IN-SITU - WHERE THE GROWTH IS

Imperial's Cold Lake in-situ facility averaged 150,000 bbl/day of bitumen in Q3, up 13% from the second quarter, but down from 163,000 bbl/day for the same time last year.

Cold Lake uses cyclic-steam stimulation (CSS) to extract bitumen in-situ, and has a nameplate capacity of 180,000 bbl/day. The facility has been bogged down by a number of unspecified operational issues this year, but the company says production should improve in the fourth quarter.

 

COLD LAKE AVERAGE BITUMEN PRODUCTION AND STEAM-TO-OIL RATIOS (DATA FROM AER)

 

Quarterly operating costs for Cold Lake were not provided, although Imperial generally claims costs track below US$12 a barrel, weighted about one-third energy (natural gas).

APPROVALS FROM THE AER FINALLY IN HAND

Imperial also confirmed it has finally received regulatory approvals for both its Aspen and Cold Lake expansion projects. Both projects employ solvent-assisted, steam-assisted gravity drainage (SA-SAGD) technology to recover bitumen, which has a significantly lower carbon footprint than traditional SAGD technology.

The company announced a positive final investment decision for Aspen this week, estimating capital costs at about $2.6 billion for the first phase of 75,000 bbl/day. Construction is expected to begin in the fourth quarter of this year, with first oil expected in 2022. Imperial also says it may sanction another 75,000 bbl/day of production contingent on “foundational project performance and overall business and market conditions.”

Aspen has regulatory approvals for up to 150,000 bbl/day of bitumen production while the Cold Lake expansion allows an increase of 50,000 bbl/day from current levels.

MANAGING HEAVY OIL DISCOUNTS

As an integrated company, Imperial is less exposed to the humongous discounts for Canadian light and heavy oil. Cheap feedstock act as a bonus for its refineries, widening crack spreads and improving profit margins. Refinery throughput averaged 388,000 bbl/day in Q3, resulting in 516,000 bbl/day of product sales, the highest quarterly sales in almost 30 years.

Imperial also announced plans to boost crude-by-rail volumes from about 100,000 bbl/day to as much as 130,000 bbl/day by the end of the year. Most of those barrels are destined for the US Gulf Coast, where Canadian heavy oil sells at prices much closer to the West Texas (WTI) benchmark. 

Imperial co-owns the Edmonton Rail Terminal, located adjacent to its Strathcona refinery. The facility is operated by partner Kinder Morgan, and has a crude loading capacity of about 210,000 bbl/day. 

Imperial Oil posted a $749 million profit in the third quarter, its best showing since late 2016.

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