July 3, 2009

Oilsands Infrastructure

Construction restarts at stalled oilsands project in Fort McMurray, Alberta

Richard Gilbert

staff writer

The completion of a debt offering has kick started construction on a stalled oilsands project south of Fort McMurray.

“We decided back in mid January to suspend the project because oil prices collapsed and the Western World, as we knew it, looked like it was coming to an end, thanks to the bankers,” said Dick Gusella, president and CEO of Connacher Oil and Gas Ltd.

“Now the project is a go. We have raised the necessary funding. The oil price has recovered and may well be sustainable.”

Connacher is restarting construction at its Algar oilsands project after completing a debt offering worth about $200 million last month.

“We have already invested $150 million in equipment and civil work and our decision is a go on $200 million,” he said.

The $350 million total cost doesn’t include costs incurred during the suspension. It cost $14 million to bring a crane in to move and store the project.”

The new money will be used for working capital and general corporate purposes, which include funding a portion of the remaining construction, drilling and completion costs.

“I have a range of suppliers and fabricators and most of the construction work is done in a controlled shop environment by oilfield guys we have used for years,” said Gusella.

“The modules are put on skids and then onto trucks. They are welded and bolted together on site by BDR Engineering Ltd.”

Gusella said construction should begin in early July, following completion of a brief pre-start-up organizational period.

The company anticipates that construction at Algar and the drilling of 15 steam assisted gravity drainage (SAGD) well pairs will take about 275 days from the start of field activities.

This will be followed by commissioning of the plant and steaming of the SAGD well pairs, which will require an additional 120 days.

Construction of the plant and the steaming of the wells is expected to be finished by August 2010.

“We had already started building some of the long lead that were constructed in other jurisdictions,” explained Gusella. “We got an approval in November to start construction, which included land clearing, road work and drilling sites.”

The reactivation of its construction plans gives the company its second plant with a full capacity of 10,000 barrels per day of bitumen.

Connacher’s primary upstream production is from its Great Divide Pod One SAGD plant.

Construction of the second plant will replicate the process used for the first plant.

At the peak of the construction, about 260 people will be working on the site and living in Connacher’s camp.

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