- Unit of Cnooc says upgrader not repairable in short term
- Company to contine bitumen production at Long Lake site
Cnooc Ltd.’s Nexen Energy unit will eliminate 350 jobs this year after deciding not to repair its Long Lake oil-sands upgrader in northern Alberta following an explosion in January.
The facility, which processes bitumen into light synthetic crude oil, can’t be feasibly repaired in the short term, executives said on a call with reporters on Tuesday. Workers will lose their jobs at Long Lake and at the Calgary headquarters. Nexen will continue producing bitumen from Long Lake, resulting in lower costs, as well as improved reliability and safety, the company said. It plans to make a final decision about returning the upgrader to service later this year, taking into consideration changing market conditions.
The explosion of a hydrocracker in the upgrader that killed two employees is among recent challenges for Cnooc in Canada after its 2013 takeover of Nexen. Nexen also contended with a pipeline leak last year at Long Lake and a wildfire in May that forced oil-sands production offline. Bitumen output from the site is ramping up from just under 15,000 barrels a day currently to a targeted 27,000 barrels a day in the next month after the outage from the fire. Despite the hurdles, Nexen said it remains committed to growing production in Canada, including in the oil sands.
“We are facing extremely tough market conditions since mid-2014 and it’s tough for the whole industry,” Fang Zhi, chief executive officer of Nexen, said on the call. “We continue to see Nexen as a significant platform for the international development of Cnooc’s business.”
The case for upgrading bitumen has shrunk as developers have faced high construction costs and as rising volumes of competing light oil from U.S. shale have squeezed profit margins. Oil-sands companies including Suncor Energy Inc. have been abandoning plans for new upgraders and only one project backed by Canadian Natural Resources Ltd. is currently under construction.
Nexen’s upgrader isn’t as efficient as its competitors because of its small size, and the technology causes significant environmental impact without offsetting commercial benefits, said Ron Bailey, senior vice-president of Canadian operations for Nexen. The company has faced operational challenges that have kept production from the upgrader below its 72,000 barrel-a-day capacity.
“There are economic considerations as well,” in deciding whether to repair and restart the upgrader, Bailey said. “The market conditions have drastically changed on us.”
Since the blast, only parts of Nexen’s upgrader have been running and it hasn’t been producing synthetic crude. The company will shut down the upgrader further into so-called winter preservation and has no set date to return the plant to full service, the executives said. After an investigation, the company found that the explosion was the result of employees doing work outside the scope of what had been approved. The incident highlights gaps in safety that are being addressed with more training, education and increased oversight from management, they said.
Nexen also released the results of an investigation into the June 2015 pipeline rupture, which spilled about 5 million liters (1.3 million gallons) of bitumen, sand and produced water into a 16,000-square meter swath of land, causing damages to the environment including killing one duck. Executives said the leak happened after a pipeline incompatible with the ground conditions buckled, and the company’s monitoring processes didn’t immediately detect it. Nexen is changing its pipeline planning and operations policies to prevent future incidents.
“We failed to live up to our own highs standards of safety and environment,” Zhi said. “This is not acceptable.”