CALGARY — — Nexen Inc. shares rose Friday despite the latest in a series of cost increases at its Long Lake, Alta., oil sands project, which lifts the price tag to nearly double the initial estimate.
Nexen, the No. 4 Canadian independent oil explorer, said the Long Lake bitumen and synthetic crude development could cost as much as $6.1-billion, up from the last estimate of $5.8-billion.
The project, in which Nexen has a 50 per cent stake, was pegged at $3.4-billion when the partners sanctioned it in 2004.
The company blamed poorer than expected productivity in the construction of its upgrading plant and difficulty securing labour amid Alberta's oil sands rush.
Nexen Inc.
OPTI Canada
It pushed the startup of the plant back to the first or second quarters of next year from the previous goal of late 2007.
Nexen shares rose 34 cents, or 1.1 per cent, to $29.04 in midday trading on the Toronto Stock Exchange. That is down about 10 per cent since the start of this year. Its Long Lake partner, OPTI Canada Inc., was up 2 cents at $19.52.
The impact on Nexen of the cost increase – the fourth in less than two years – is tempered by strong performance in other operations, notably the new 200,000 barrel a day Buzzard oil field in the North Sea, Salman Partners analyst Kyle Preston said.
Nearly all oil sands projects have been hit with large cost overruns due to a tight labour supply in Alberta and industry-wide inflation in the costs of key materials like steel.
“I know people come out with much more conservative, realistic cost estimates based on the current environment, but I would expect to see, more than likely, continued cost increases in these projects, especially these ones that are five years out-plus,” Mr. Preston said.
Nexen said it now believes it has enough workers to finish its project. It has started commissioning parts of the upgrader, which turns the tar-like bitumen from the oil sands into synthetic crude for refineries.
The project's first phase is expected to produce 60,000 barrels a day when output peaks within 12 to 24 months after startup.
