Total Canada chief says oilsands need pricier oil

Scott Haggett, October 6, 2009, The Calgary Herald, CALGARY - The new chief executive of Total SA’s Canadian unit said on Monday the French oil major will delay giving the final go-ahead for its Joslyn oil sands project in Alberta, waiting until higher oil prices allow it to wrest a solid return from its Canadian investments.

Jean-Michel Gires, who took over as chief executive of Total E&P Canada late last month after six years as Total’s executive vice-president of sustainable development and the environment, said that current oil prices just won’t justify Total’s ambitious strategy in Canada’s oil sands.

“Currently oil at about $60 to $70 per barrel we think is not enough to justify some of the significant projects we are contemplating, especially on the mining side,” Gires said in an interview. “Eighty dollars to $85 a barrel would be ... the necessary price level we would need. But obviously we are contemplating these projects not only for the next year but for the very long term.”

Total has established a big presence in Canada’s oil sands, including two potential mining projects, a thermal development shared with ConocoPhillips and plans for an upgrader to convert the tar-like bitumen stripped from northern Alberta’s oil sands into refinery-ready synthetic crude.

But other than its shared thermal project, which pumps steam into the ground to liquefy the bitumen so it can flow the surface, Total is still examining how best to exploit its more than 3 billion barrels of reserves in the region.

It is also looking at how to restrain the cost inflation that led to the delay, deferral and outright cancellation of billion of dollars worth of projects in the region when oil prices plunged last year.

“Even at $80 a barrel, the cost structure will have to (be reduced) by a pretty significant fraction for those projects ... to deliver an economic benefit at the required level,” he said. “Prices have gone down for equipment and raw materials. We would expect them to cool down somehow as well in the next months and years to come.”

Total Canada’s biggest asset is the planned Joslyn oil sands mine 65 kilometers northwest of Fort McMurray, Alberta, which could eventually produce as much as 200,000 barrels per day from two equal-sized mining phases.

The company had been expected to make an final investment decision sometime in 2010 on the project’s first phase, whose cost was last estimated at $9 billion. However Gires said that decision will now likely come by the end of 2011 after the project clears regulatory hurdles.

“If everything goes well, it will allow production, though it’s still too early to know, between 2016 and 2018,” Gires said.

Despite the cancellation or deferment of most major Alberta upgrading projects, Gires said Total was still committed to building one to handle its bitumen output.

The first 130,000 barrel per day phase of the facility had originally been planned for 2012, but the company said last year that regulatory delays would push that to 2105. However Gires said construction of the upgrader would be timed to coincide with bitumen production from Joslyn and from a planned expansion of its Surmont thermal project.

“We’re still committed to the upgrader,” he said. “We just have to adjust the timing so we can match with our planning for the mine. There’s no point in having an upgrader (without) adequate supplies.”

Gires said some of its eventual bitumen production could be sent to Total’s 174,000 barrel per day refinery at Port Arthur, Texas. The company has committed to shipping some of its production on a new pipeline from the oil sands to the refineries on the Gulf Coast that is being planned by TransCanada Corp. But he said most of the production will be upgraded in Alberta.