OTTAWA -(Dow Jones)- The merger between Suncor Energy Inc. (SU) and Petro-Canada (PCZ) will likely push down costs for the delayed Fort Hills oil sands project, Petro-Canada chief executive Ron Brenneman said Monday.
He also hinted that the project's oil sands upgrader - which is currently on hold - could be canceled altogether, choosing to process the sludgy oil sands bitumen through Suncor's upgrading facilities instead.
Late last year, Petro-Canada and project partners UTS Energy Corp. (UTS.T) and Teck Cominco Ltd. (TCK) delayed the integrated oil sands development in northern Alberta after costs spiked more than 50% to top C$28 billion.
New projects generally have higher costs than expanding existing developments, as they need to build all new infrastructure and support facilities from scratch. With the merger, Brenneman said, the first 160,000-barrel-a-day Fort Hills development will be able to take advantage of Suncor's existing oil sands infrastructure.
"We would expect, because this project is now part of a portfolio of oil sands projects...we could see capital intensity more akin to the second phase of the project," Brenneman said on a conference call.
The second phase of Fort Hills was estimated at C$12.1 billion in mid-2007, and hasn't been updated.
The merger also increases the likelihood that the Fort Hills upgrader will be canceled, which accounts for a major chunk of the project costs. An upgrader processes oil sands bitumen into a lighter crude that is more easily handled by refineries.
As part of discussions with the Alberta government around developing the Fort Hills lease, Petro-Canada can proceed with the project "without any obligation" to upgrade the resulting bitumen in Alberta, Brenneman said.
The company has made a commitment to upgrade bitumen from a second project phase, but this doesn't mean Petro-Canada has to build an upgrader, he added.
Suncor already has two upgraders and is planning a third as part of its delayed Voyageur development.
-By Hyun Young Lee, Dow Jones Newswires; 613-237-0669; hyunyoung.lee@dowjones.com