April 25 (Bloomberg) -- Imperial Oil Ltd., the second-largest Canadian oil producer, said sales from the C$12.9 billion ($12.7 billion) Kearl oil-sands project will begin in the third quarter, later than some estimates.
“We’re right on the cusp of starting up” production, Richard Kruger, chairman and CEO of Calgary-based Imperial, told reporters today after the release of first-quarter results. The Alberta project, which will have initial output of about 110,000 barrels a day, was expected to start late last year. The company has been saying for weeks that first oil was expected soon.
The timing of sales is later than the second-quarter estimate by Greg Pardy, a Toronto-based analyst at RBC Capital Markets. Part of the process of bringing the bitumen to market involves filling a 100-mile (160-kilometer) pipeline from the site to a terminal south of Fort McMurray, Pardy wrote in a note to clients today.
Kearl holds an estimated 4.6 billion recoverable barrels of crude. Imperial, 70 percent owned by Exxon Mobil Corp., raised its estimate for initial costs on Feb. 1 because of “harsh weather” and issues delivering heavy equipment to the site, 40 miles north of Fort McMurray. Some residents of Montana protested the truck traffic through their state on its way to Alberta.
There’s been “nothing unusual” with the Kearl startup, for a big project, Kruger said.
“It’s normal and expected that it would take 60 to 90 days from first clean bitumen production for tankage and line fill before we actually begin shipping,” Pius Rolheiser, a spokesman for Imperial, said in an e-mail today, putting startup “within days, not weeks.” Rolheiser said on April 1 that first production was expected “in the next few days.”
The project, which Imperial plans to later expand to 345,000 barrels a day, has been delayed more than once. Former Chief Executive Officer Bruce March said in December the project would begin operating in January.
The company plans to avoid the impact of selling Kearl’s output at lower prices for oil-sands crude, relative to the U.S. benchmark, by transporting it to refineries owned by Imperial and Exxon, Kruger said. Imperial is also looking to secure rail cars for transporting some of the crude, to avoid a pipeline shortage from western Canada that’s depressing prices.
Imperial and Exxon are examining a project to freeze and liquefy natural gas for tanker export off Canada’s Pacific Coast and considering several sites in northern British Columbia including Grassy Point, Kruger said. The companies are assessing whether they have enough gas in the Horn River formation in British Columbia and from Exxon’s acquisition of Celtic Exploration Ltd. in February.
Exxon and Imperial’s LNG venture was among four proposals submitted to the British Columbia government earlier this month in a competition for provincial land at Grassy Point, including projects by Cnooc Ltd. and Inpex Corp., Woodside Petroleum Ltd. and SK E&S Co., according to the government.
Imperial gained 1.1 percent to C$40.51 at the close in Toronto. The stock has one sell, five buy and 11 hold recommendations from analysts, according to data compiled by Bloomberg.
The Kearl update was part of Imperial’s quarterly earnings statement today. Net income dropped to C$798 million, or 94 cents a share, from C$1.02 billion, or C$1.19, a year earlier. Earnings per share fell 1 cent short of the 95-cent average of 12 analysts’ estimates compiled by Bloomberg.
The 21 percent drop in profit was due to lower oil prices, reduced output, higher refinery costs and maintenance work, Imperial said. The price of Canadian heavy crude fell 12 percent from a year earlier to average $66.99 a barrel in the quarter, according to data compiled by Bloomberg.
Sales rose to $8.01 billion, from $7.53 billion last year. Gross production in the quarter fell 1.7 percent to the equivalent of 284,000 barrels of oil a day, from 289,000 barrels last year. Kearl will reach 110,000 barrels of output this year, Imperial said.
The 2013 production target for Kearl was positive and earlier than expected, Chris Cox, a Calgary-based analyst at AltaCorp Capital Inc., said in a phone interview today. Record production at Cold Lake, still Imperial’s “crown jewel” among projects, was also encouraging, he said.
Suncor Energy Inc. is the largest Canadian oil producer by market value.
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