Canadian Natural on track with Horizon expansion

Canadian Natural Resources (CNQ-T) is moving along with its staged expansion at its prized Horizon oilsands project near Fort McMurray, Alberta, to boost the current production capacity to 250,000 barrels.

Horizon’s ability to generate sweet synthetic crude oil (SCO) could be further enhanced to 500,000 barrels a day, said Steve Laut, the company’s president, on a recent first-quarter conference call.

That said, he notes Canadian Natural is working on a combined phase 2 and 3 expansion, set to take Horizon’s current capacity of 110,000 barrels a day to 250,000 barrels a day in 2017.

“We have made significant progress to improve operations reliability at Horizon in the past year,” Laut notes, pointing to the project’s strong quarter.

For the first three months of the year, Horizon produced 108,782 barrels per day compared to 46,090 barrels per day in the first quarter of 2012 and 83,079 barrels per day in the fourth quarter of 2012. First-quarter output met the company’s guidance of 105,000–111,000 barrels per day.

However, second-quarter production is expected to trend lower, averaging 77,000 to 83,000 barrels per day, owing to a 24-day scheduled maintenance, which started on April 30.

“This is the first major turnaround at Horizon, and we have put considerable effort to address all known issues that have hampered reliability, as well as the inspection of pressure vessels and exchangers,” says Laut, maintaining production should improve following the shutdown.

Currently, the miner has completed 20% of the combined phase two and three expansion. Breaking down the components, it says Reliability is 88% complete and, once done, this project should add 5,000 barrels a day to production.

The company has also finished 17% of Directive 74, including research into tailings management; 52% of phase 2a, slated to add 10,000 barrels a day in 2015; 11% of phase 2b, which will add another 45,000 barrels a day in 2016; and 11% of phase 3, set to expand capacity by another 80,000 barrels a day in 2017.

“We’re tracking to schedule and are running below our costs estimates by about 10%,” said Laut. The company plans to spend $2.06 billion on the expansion in 2013.    

It forecasts Horizon will generate 100,000 to 108,000 barrels a day in 2013, up from last year’s production average of 86,000 barrels a day.  

Summarizing the potential at the project, Laut said: “Horizon has a 40-year reserve life with no declines and virtually no reserve replacement costs, allowing decades of sustainable and significant free cash flow.”