(Adds executive, analyst comments. In U.S. dollars unless noted)
By Jeffrey Jones
CALGARY, Alberta May 7 Total SA (TOTF.PA) plans to build a multibillion-dollar oil sands upgrading plant near Edmonton, Alberta, to process extra-heavy crude from its Canadian projects, the French oil major said on Monday.
Total joins several developers planning such plants in the region, but the head of its Canadian operation said Alberta's stretched labor force and surging cost inflation due to the oil sands rush hasn't deterred it.
"We're trying to use the expertise of the local workforce, because there is a great deal of expertise here in Alberta, in Calgary, Edmonton and further north, and then trying to match that with some of the international experience and expertise that Total can bring to it," Michael Borrell, president of Total E&P Canada Ltd., said.
The company started the regulatory process for a 200,000 barrel a day upgrader, in Fort Saskatchewan, Alberta, that would turn tar-like bitumen from its two big oil sands developments into refinery-ready light crude.
It would be built in two stages, the first being a 130,000 barrel a day phase starting in 2013 or 2014.
Total said it would need 4,000 workers to build the plant and up to 400 to run it.
Total didn't provide cost details, although FirstEnergy Capital Corp. analyst Mark Friesen said plants using such technology, called delayed coking, have been pegged at about C$45,000 ($40,900) per daily barrel of output or more.
That would put a price of at least C$5.9 billion on the first phase of the Total upgrader.
Total has interests in two big oil sands developments: the $9 billion Joslyn mining project, slated to produce 100,000 barrels a day in its first big phase, and the Surmont venture, where it pumps steam into the ground to allow bitumen to flow to the surface in wells.
With its growing output, the company does not plan to take in third-party volumes at the upgrader, Borrell said.
Other companies planning upgraders in the Edmonton area include BA Energy, Royal Dutch Shell (RDSa.L), Petro-Canada PCA.TO and Northwest Upgrading.
Another firm, Synenco Energy Inc. SYN.TO, halted work on its upgrader last week, blaming soaring costs and the potential for poor returns as a result.
Still, costs in that area are seen as lower than near the northerly oil sands hub of Fort McMurray, Alberta, where the bulk of the reserves are.
"It's still a lot of activity in one place at one time, but labor is closer," Friesen said. "It's easier, perhaps, because you can work a 12-hour shift and go home and see your kids. You're not stuck in camp for three weeks at a time."
Total is also a major investor in heavy crude projects in Venezuela, where President Hugo Chavez's government has seized operational control from many of the world's biggest oil companies.
That has not necessarily prompted the French oil company to put more emphasis on the Canadian oil sands business, which it entered in the mid-1990s, Borrell said.
Canada's unconventional crude is marked by huge reserves with long-term potential and a need for complex technology, things Total looks for in its investments, he said.
"We then don't need to look at the portfolio effect to see that oil sands makes sense to us whatever else is happening anywhere else in the world," he said.