MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING MONDAY, FEBRUARY 2, 1998 (4)
OILSANDS
FEATURE STORY
Japan Canada Plans Oilsands Project
Irene Thomas Fort McMurray Today
Japan Canada Oil Sands expects to begin construction of an oilsands pilot plant by March. Estimated to cost about $26 million, the 2,000 barrel-per-day plant south of Fort McMurray will use steam-assisted gravity drainage technology to extract bitumen from deposits too deep for surface mining.
Jim Kovalsky, the project's senior operations engineer, said the plant is the first phase of a five-year initiative. Japan Canada submitted its application to the provincial Energy and Utilities Board earlier this month.
Demolition of some existing buildings will begin in late February as will construction of the new SAGD plant, Kovalsky said following a speech before about 90 people attending a Fort McMurray Construction Association luncheon. "Construction will take place up until about November or December with start-up projected for late 1998 or early 1999."
The second $45 million phase is expected to have 6,000 to 7,000 barrels per day of production. Wells for phase two would be drilled in August with start-up in the summer of 1999 using the same facility.
Kovalsky said phase one is anticipated to create about 20 permanent jobs. Construction jobs will peak at about 40. About 20 additional permanent workers will be needed during the second phase. Start-up for the third 10,000-barrels-per-day phase would begin in late 2001, he said, adding that time frame isn't final and could be moved up.
Japan Canada hasn't decided whether it will OK the 10,000 barrels per day phase. Kovalsky said that decision will depend upon performance of phases one and two, and market conditions. The cost for all three phases will likely total about $200 million, Kovalsky said.
The company's new plant is to be located on the site once operated by Petro-Canada and Japan Canada. The company acquired a 100-per-cent interest in the three-and-a-half sections of the old cyclical steam pilot plant site in late 1997. Petro-Canada, Japan Canada, Imperial Oil and Canadian Occidental had been partners in the Hangingstone pilot project which ceased operations in 1994.
"We were a partner in the UTF (Underground Test Facility) and we are now taking that technology and applying it Hangingstone," said Kovalsky.
Japan Canada plans to truck the bitumen for processing because it offers the most flexibility, he said. At 10,000 barrels-per-day production, the company is anticipating a production cost of $10 per barrel. Forty per cent of that cost relates to transportation costs, he said.
The construction of plant was originally scheduled to begin in 1997; it was one of the many oilsands projects announced by Prime Minister Jean Chretien in June 1996 when he visited Fort McMurray. Commercial production could eventually reach 100,000 barrels, Kovalsky said.
Suncor Inks Oilssands Byproducts Deal With Nova
Irene Thomas Fort McMurray Today
Suncor Energy has struck a deal with Novagas Canada Ltd. to sell them 'off-gas,' a by-product of the oilsands process. The deal will see Novagas construct a $164-million plant near Suncor to extract and separate natural gas liquids and olefins from off-gas. Construction of the plant is slated to begin this summer with completion set for the third quarter of 1999. Off-gas production is estimated to be 10,000 barrels per day. Those volumes are expected to double when Suncor's $2.2-billion expansion comes on stream in 2002. During construction, NCL expects a peak workforce of about 250. On completion, the liquids plant will provide 16 full-time jobs, including contract maintenance services.
The project requires regulatory approval from the provincial government. NCL, an expanding natural gas and liquids services company owned by Calgary-based Nova Corporation, will own the new facilities and market the upgraded liquids as commercial products.
Under the deal announced, the recovered liquids and olefins will be transported via Suncor's 385-kilometre pipeline to NCL's Redwater fractionation facility, located northeast of Edmonton. The Redwater facility will separate the oilsands byproducts into commercial goods such as ethane, propane, butane and condensate.
"It's the first time that the natural gas liquids and olefins contained in oilsands have been targeted for their higher market value," said Novagas Canada president Randy Findlay in a release. NCL said it plans to build an additional fractionation tower at its Redwater facility to add propylene production capability. For Suncor, the NCL project has two significant benefits, said executive vice-president Mike Ashar. "It provides Suncor with an additional source of revenue from the sale and transportation of liquids in our
off-gas and it improves the environmental performance of our oilsands operations," said Ashar. Suncor's emissions will be reduced by the project because the oilsands plant won't use the natural gas liquids and olefins as an energy source for upgrading. Instead it will use cleaner-burning natural gas as fuel. Initially that change will reduce Suncor's sulphur dioxide emissions by up to three tonnes per day initially. When Suncor's proposed expansion is completed in 2002, emissions will be reduced by up to six tonnes per day, the company said.
FEATURE STORY
Suncor Energy Goes Green
Glen Whelan -- Calgary Sun
The winds of change blew through Suncor Energy Inc.'s Calgary headquarters yesterday with word the integrated oil and gas giant would purchase so-called green energy from another local firm.
Suncor struck a deal with Calgary's Vision Quest Windelectric Inc. to fund the generation of up to 350,000 kilowatt-hours per year from wind turbines in Alberta.
"While our first priority is to look for increased efficiencies within our own operations here in Canada, we also need to look outside our plant gates and outside our borders for new solutions," Suncor spokesman Barry Stewart said in a Calgary address to the Canadian Energy Research Institute.
The electricity -- enough to power 350-400 homes for a month -- will come from giant wind turbines near Pincher Creek and Hillspring and end up in a province-wide electricity pool.
Hot on the heels of the Kyoto, Japan, conference on global climate change, the contract marks a new-found commitment by Suncor to fund alternative energy solutions.
It also shows the firm's commitment to the notion of emissions trading, where a company can earn credits from projects not directly attached to its own operations.
Suncor hopes the idea of credits, or offsets, will be endorsed when world leaders meet later this year to hammer out the details of the Kyoto conference in December.
"Offsets balance economic and environmental needs," said Stewart.
"They enable investment to be made where it can have the most significant impact, wherever that may be."
For Vision Quest, Suncor is the first in what may become a long list of oilpatch players willing to pay a premium for emissions credits.
In December, the firm won a contract with Enmax, the city's energy utility, to provide wind energy for Calgarians willing to pay a little more for green power.
Now it appears the oilpatch is also willing to pay a premium to counteract their greenhouse gas production.
"The Enmax deal was a great opportunity, but we're still on the ground floor and slowly opening doors," said Vision Quest spokesman Mike Bourns.
With each kilowatt-hour of wind energy saving about 1 kg of greenhouse emissions, the program could become a popular way for energy producers to build up credits should the process be ap-proved by the Kyoto signatories, Bourns said.
"This is our first inroad into the oil and gas sector, which is significant in Alberta. Eventually, we want to be considered an important part of the energy industry in the province."
FEATURE STORY
Cash Crunch Hits Solv-Ex Corp.
Irene Thomas Fort McMurray Today
Solv-Ex won't be able to make its full payroll beyond the end of January. A Jan. 26 report to the Calgary Court of Queen's bench from accounting firm Price Waterhouse reveals Solv-Ex is experiencing a "cash shortage." Solv-Ex hasn't been "in a position to make payment of amounts due to all parties who have continued to provide goods and services" since July 14, the 12-page document said.
The oilsands developer with an experimental plant 70 kilometres north of McMurray first filed for court protection from its Canadian creditors last July. Cash flow projections indicate monthly operating and overhead expenses of $401,439 before post-July 14 liabilities, the report said. As of Jan. 19, Solv-Ex had a cash balance of $130,526. Expenses for payroll, utilities and mortgage payments add up to $48,000 Cdn per week, the report said. It added one option to pay the bills is to "immediately" sell Solv-Ex's acid plant, estimated to be worth $2-million. Cash poor Solv-Ex hasn't paid more than $116,000 in court-related fees as of Jan. 15. That outstanding balance includes the law firm Macleod Dixon, owed approximately $69,000; Price Waterhouse's invoice is about $46,000.
"Macleod Dixon are holding a $100,000 retainer to be applied to their fees," said the report. The $150,000 retainer held by Price Waterhouse Ltd. was applied to an invoice of $196,000 leaving an outstanding balance of $46,000.
To restructure and preserve assets, it's essential Solv-Ex obtain immediate funding from the sale of assets or from debtor in possession financing, said the report. Debtor in possession financing helps companies continue operation while their assets are sold.
But the $750,000 US in DIP financing expected from Koch Exploration of Calgary -- currently in the process of buying Solv-Ex's assets for $30-million Cdn -- hasn't arrived and the report doesn't say why.
Reached this morning, Koch spokeswoman Tammy Sauer couldn't offer an explanation.
Koch is aiming to close the deal by Feb. 15, she said. One sale condition is for the province to grant Koch a 15-year renewal of Solv-Ex's oilsands lease. The government hasn't announced its decision.
Under the deal for Solv-Ex's assets, Koch will be the majority owner with a 78-per-cent stake while Solv-Ex retains a 12-per-cent share and United Tri-Star Resources Ltd. of Toronto left with 10 per cent.
To date, more than $28.7 million Cdn and $39.4 million US in claims have been filed against
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