Improved reliability at Syncrude and restart of Norman Wells helps offset lost curtailment barrels at Imperial

Improved reliability at Syncrude and restart of Norman Wells helps offset lost curtailment barrels at Imperial

Imperial Oil provided an update to its shareholders this week, as part of its first quarter earnings release. The company posted a big drop in profits due to weaker refining margins, and remains a big critic of the Alberta government's curtailment program.

HIGHER OUTPUT DESPITE CURTAILMENT ORDER

Imperial averaged 388,000 boe/day in the first quarter, up about 5% from the same time last year, but well below record levels hit in the fourth quarter of 2018. Declines at Kearl and Cold Lake were offset by higher output from Syncrude and the restart of Imperial’s Norman Wells facility in the Northwest Territories.

GRAPHIC COURTESY IMPERIAL OIL

PROGRESSING TOWARDS 280,000 BBL/DAY AT KEARL

Gross production at the Kearl Oil Sands Mine averaged 180,000 bbl/day in the first quarter, down from 182,000 bbl/day for the same time last year. The company says it remains on track to hit a full-year average of 200,000 bbl/day this year, and boost nameplate to 240,000 bbl/day by 2020.

Part of those incremental barrels will come from improved reliability, particularly on the front end of the plant. The facility will see more crusher capacity come on line by the end of the year, and will eventually see the addition of interconnects on its hydrotransport lines. The upgrades come at an estimated cost of $550 million. 

GRAPHIC COURTESY IMPERIAL OIL

Beyond 2020, Imperial is looking at squeezing another 40,000 bbl/day out of the oil sands mine through a number of small debottlenecking projects, including upgrades to the Primary Separation Cells, addition of flotation cells to recover bitumen from tailings streams, and interconnects within the Froth Treatment plant.

Kearl’s autonomous haul truck program received regulatory approval from Alberta Occupational Health and Safety, allowing Imperial to automate its entire mining fleet. The company says it plans to expand its ongoing pilot to about 20 trucks through 2020, before making a final decision on whether to fully automate its entire fleet.

A four-week shutdown is expected to beginning in the middle of May. Kearl averaged 206,000 bbl/day of bitumen in 2018, sold directly to refineries as a heavy diluted product, without an intermediate upgrading step.

Imperial owns a 71% stake in Kearl, with the balance owned by parent-company Exxon Mobil.

GRAPHIC COURTESY IMPERIAL OIL

AN UPDATE ON COLD LAKE

Production at Cold Lake averaged 145,000 bbl/day in the first quarter, down from 153,000 bbl/day for the same period last year. Lower production was attributed to the timing associated with steam management, which is typical of in-situ facilities that use cyclic steam stimulation (CSS) to recover bitumen. 

More wells are planned at the facility, as well as increased use of solvents, in order to help maintain and grow production.

Cold Lake began a 36-day shutdown this week, which is expected to dent second quarter production by 13,000 bbl/day. The in-situ facility averaged 147,000 bbl/day of bitumen last year.

2019 CAPITAL SPENDING PLANS SLASHED DUE TO SLOWER SPENDING AT ASPEN

Last March, Imperial announced a 1-year delay in its Aspen project, pushed forward to the end of 2023. The delay was blamed on Alberta’s "intervention in crude markets and other industry competitiveness challenges.” As a result, this year's capital spending program was cut by about $500 million, to between $1.8 and $1.9 billion.

Aspen is a solvent-assisted, steam-assisted gravity drainage (SA-SAGD) facility, located about 15 km east of Fort McKay. The first phase of 75,000 bbl/day is expected to cost $2.6 billion.

IMPROVED UPTIME AT SYNCRUDE

Imperial says Syncrude averaged 312,000 bbl/day of light synthetic crude in the first quarter, up from 260,000 bbl/day for the same quarter last year. The improvement was attributed to reduced downtime, partially offsetting impacts of Alberta’s production curtailment order.

A major turnaround is planned sometime in the third quarter, including maintenance on one of its cokers. Syncrude averaged 248,000 bbl/day in 2018. Imperial Oil owns a 25% stake in the Syncrude Project.

STILL LOOKING AT CRUDE-BY-RAIL, ALTHOUGH NOT NEARLY AS BULLISH

Crude-by-rail shipments averaged 36,000 bbl/day in the first quarter, down from 146,000 bbl/day in the fourth quarter of last year. The company was planning to ramp up shipments to as much as 210,000 bbl/day out of its Edmonton rail terminal, but took volumes to almost zero in February due to an abrupt narrowing of the heavy oil discount.

Most of Alberta's crude-by-rail exports are destined for the Gulf Coast, where producers get top dollars for heavy sour crude. A narrow discount between Alberta's heavy crude and West Texas Intermediate make it more economical to ship crude by pipeline.

CEO Rich Kruger says Imperial has recently resumed limited rail volumes, and will continue to evaluate future shipments if and when they become "economically justified."

STILL A VOCAL OPPONENT OF ALBERTA’S CURTAILMENT PROGRAM

Imperial continues to be very unhappy with the NDP government's decision to impose production caps on the province's major oil producers. Kruger estimates the quotas cost the company $250 million in the first quarter, lost mainly in its downstream refining business. The CEO also points out that the province's oil inventories are back to where they were last November, before curtailment was announced.

Despite the earnings miss, Imperial raised its second quarter dividend 16% to $0.22 per share.

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