Alberta oilsands project remains closed until oil hits above $50 US a barrel

One of Canada's oldest oilsands projects, which was shut down during the wildfires in Fort McMurray, Alta., will remain closed until benchmark oil prices rise above $50 US per barrel, its operator said Monday.

The Hangingstone thermal oilsands project, operated by Japan Canada Oil Sands Ltd. since 1999, was shuttered in May as a precaution when staff were evacuated due to the wildfires.

Satoshi Abe, the company's executive vice-president, said the facility won't be restarted for economic reasons.

"It was our plan before the wildfire to shut it down temporarily because of the very, very weak oil price market," said Abe in an interview.

"With WTI (West Texas Intermediate) in the lower $40s, we are losing money for every barrel we produce. So we decided to suspend production to improve our short-term results while at the same time leaving resources in the ground to be produced when market conditions get better."

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The project was built with capacity of 10,000 barrels per day to test the use of steam to produce bitumen from wells but had been producing only about half of that in recent years. At full capacity, Canada's oilsands industry produces about 2.5 million bpd.

Abe said construction continues on the company's nearby $1.8-billion Hangingstone expansion project, which is expected to be completed by the end of the year and begin producing by the middle of next year. Japan Canada Oil Sands is planning to ramp up capacity of that site to 20,000 barrels per day, with room for a future expansion to 30,000 bpd.

Layoffs not expected

Japan Oil Sands, owned by a consortium of Japanese companies, doesn't expect any layoffs from among its 200 current permanent staff because they will be needed during construction and when the new project opens, Abe said.

Analyst Michael Dunn of FirstEnergy Capital said the Japan Canada operation had higher than average costs per barrel because of its relatively small size, the age of some of its wells and equipment and the fact it was trucking its product to market instead of using a pipeline.

He said the expansion project, which will be connected to a pipeline, will be more economically sound.

Abe said about 800 people were evacuated from the construction site and about 40 from the operating site when the wildfire erupted. They were able to return by late May.

The projects are 25 per cent owned by Nexen Energy, a subsidiary of Chinese state-owned firm CNOOC Ltd.

The Alberta Energy Regulator recently reported provincial oilsands production in May dropped by about 25 per cent, mainly because of the wildfire and the resulting evacuation of about 90,000 people from the region.

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