* Kearl budget rises by C$2 bln to C$12.9 bln
* Company expects first oil from site by end-Q1
* Extends deadline for sale of Dartmouth, N.S., refinery
* Q4 EPS C$1.26/shr vs year-earlier C$1.18/shr
* Shares rise 0.4 pct
By Scott Haggett and Ankur Banerjee
CALGARY, Alberta, Feb 1 Imperial Oil Ltd
said on Friday the cost of its recently completed Kearl
oil sands project in northern Alberta ballooned to C$12.9
billion ($12.9 billion), nearly 20 percent above its last
estimate, because of transportation delays and a harsh winter.
The company, which also reported a 7.1 percent rise in
fourth-quarter profit, said a series of court challenges in the
U.S. Pacific Northwest that delayed the transport of
foreign-made processing modules to the site forced a change in
construction schedules and increased costs.
The final cost of the 110,000 barrel per day oil sands mine
is C$2 billion above Imperial's last estimate, in 2011, and
nearly two-thirds higher than its initial 2009 forecast of C$7.9
Every major mining project in the Alberta oil sands, the
world's third-largest reserve of crude oil, has suffered
substantial cost increases. But analysts cautioned that
Imperial's blown budget is not an indication that the sector is
again experiencing the hyper-inflation that plagued oil sands
projects before the financial crisis, when companies were
competing for materials and a limited supply of skilled labor.
"It's these issues with the modules being delayed in the
U.S. ... and then it got cold earlier than expected," said
Michael Dunn, an analyst at FirstEnergy Capital Corp. "Whenever
you run into delays right at the end (of construction) that's
when the costs hit because you have everyone on site and
productivity drops, especially in the cold. ... It's not
necessarily a good barometer for cost escalation."
FIRST OIL DELAY
Imperial, majority owned by Exxon Mobil Corp, said
it expects to begin producing bitumen at Kearl by the end of the
first quarter, reaching full output "over the next several
The company has revised forecasts for the start of
production at the site repeatedly. The start was originally
slated for December and then extended over recent weeks as
temperatures in the Fort McMurray, Alberta, region dipped close
to -40 Celsius (-40 Fahrenheit). Some observers are pessimistic
that Imperial will be able to meet its latest target.
"We would not be surprised to see production not starting up
until May," said Andrew Potter, an analyst at CIBC World
Oil traders have said that expectations of production from
the Kearl development have been a factor in the deepening of
discounts on prices for Canadian heavy oil, as export pipeline
capacity remains limited in the face of increased oil sands
With Imperial delaying production, the discount for Western
Canada Select heavy oil, compared with the U.S. West Texas
Intermediate benchmark, has narrowed in recent weeks from more
than $40 per barrel to just over $30 on Friday.
Despite the delays and cost increases, the company has
already begun work on doubling the size of Kearl. The C$8.9
billion Kearl expansion project, which will also be co-owned by
Imperial and Exxon Mobil, is ahead of schedule and expected to
be complete in 2015.
DARTMOUTH REFINERY SALE
Imperial also extended its deadline for the sale of its
82,000 bpd refinery in Dartmouth, Nova Scotia, beyond the first
The company put the facility on the block last year as the
high cost of processing expensive sea-borne crudes cut into the
Imperial said a number of potential buyers have expressed
interest in the refinery, but a final decision may not come
until later in 2013.
Imperial said its fourth-quarter earnings rose to C$1.08
billion, or C$1.26 a share, from C$1.01 billion, or C$1.18 a
share, a year earlier, helped by higher refining margins due to
cheaper inland North American crude prices.
Revenue fell 4 percent to C$7.8 billion.
Production dropped to an average of 285,000 barrels of gross
oil-equivalent per day, from 291,000 a year earlier.
Imperial shares were up 18 Canadian cents at C$43.98 at
midday on Friday on the Toronto Stock Exchange.