Petro-Canada reviews scope of Fort Hills project

Cost increases have put the scope of a proposed upgrader project outside Edmonton under review, Petro-Canada announced Wednesday.

The estimated costs of the Fort Hills project, which includes a mine north of Fort McMurray as well as an upgrader in Sturgeon County, have skyrocketed to more than $21 billion, 50 per cent more than the original price tag that was estimated in June 2007 to be $14.1 billion.

"We've seen a dramatic rise in capital costs in the past year," Ron Brenneman, Petro-Canada's president and chief executive officer, said in a release Wednesday.

According to Petro-Canada, the biggest increases are in the costs of construction materials, labour, project management and engineering.

Brenneman says a definitive cost estimate will be developed after the front-end engineering and design work is complete.

Petro-Canada has a 60 per cent stake in the project. The company says all the partners in the project are fully committed to it, but the cost increases have them looking at several options, said Petro-Canada spokesperson Peter Symons.

"One, would be not to do it. Two, would be to do it the way it's scoped. And three, would be do it as a phased approach or just do a mine," leaving the upgrader construction for later, Symons said.

Questions about whether the Fort Hills project will be delayed could also affect plans for other projects in the so-called Upgrader Alley northeast of Edmonton. Three upgraders have been built or are currently under construction. Approximately nine more are planned. 

People in the industry are keeping an eye on the project, said Greg Stringham with the Canadian Association of Petroleum Producers.

"People have lived in the past through the ups and downs of oil commodity prices and so it's really too early to kind of guess that the industry is going in one way or the other because it's just been very short-lived,"  Stringham said.  "But people are watching it very closely. They're watching the costs side. They're watching to see what the projects are looking like."

The first phase of the project, as it was originally planned, would produce 140,000 barrels of synthetic crude oil a day. First bitumen production is projected for late 2011, and output from the upgrader would start in the middle of 2012.

An announcement on the future of the Fort Hills project is expected by the end of the year.