Feb. 1 (Bloomberg) -- Imperial Oil Ltd., the second-largest Canadian crude producer, raised the estimate for initial costs at its delayed Kearl project to C$12.9 billion ($12.9 billion) and predicted output would begin by the end of March.
The increased costs are due to issues transporting heavy equipment to the site in Alberta and “harsh weather” as startup began, the Calgary-based company said in a statement today. The figure is an 18 percent increase from a December 2011 company estimate for the 3.2-billion-barrel project, which Imperial had said would begin operating last year.
“They’ve revamped the design and the cost target was left out there for a long time without updating it,” said Sam La Bell, an analyst at Veritas Investment Research in Toronto who has a buy rating on Imperial and doesn’t own the shares. “They haven’t been very forthcoming” about the costs and how they’ve changed, he said.
Kearl’s output will reach 110,000 barrels a day in the “next several months” as the company mines the mixture of heavy oil, sand and water to get crude. An expansion will bring daily production to 345,000 barrels in 2015, Imperial said today. Kearl is one of the largest oil-sands deposits in Canada, which holds an estimated 173 billion barrels of recoverable crude in three areas.
Weather added to Kearl’s delays after the company was forced to re-route hundreds of South Korean-built modules through Montana and Idaho because of protests by local residents. The project development costs have risen to C$6.80 a barrel, up 10 percent from the prior estimate of C$6.20 a barrel, Imperial said.
Kearl is part of Imperial’s effort to more than double oil production to 600,000 barrels a day by 2020.
Imperial, which is 70 percent owned by Exxon Mobil Corp., today reported fourth-quarter profit that exceeded analysts’ estimates as record refining earnings made up for a decline in output. Net income rose 7 percent to C$1.08 billion, or C$1.26 a share, from C$1.01 billion, or C$1.18, a year earlier, the company said in a statement today.
Gross output in the fourth quarter averaged the equivalent of 285,000 barrels a day of oil, down 2 percent from 291,000 a year earlier because of the sale of natural gas assets.
Refining profit in the quarter rose to C$549 million from C$272 million a year earlier as the company reaped the difference between low-cost Western Canadian crude and the price of gasoline. Imperial is the largest refiner in Canada, with four facilities capable of processing 508,000 barrels a day.
Imperial rose 0.3 percent to C$43.91 at the close in Toronto. The stock has five buy, 11 hold and one sell rating from analysts.
Suncor Energy Inc. is Canada’s largest oil producer by market value.
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