February 22, 2008 / 9:32 PM / 12 years ago

UPDATE 1-Harvest eyes C$1 bln Newfoundland refinery upgrade

(Adds details of expansion, timing)

By Jeffrey Jones

CALGARY, Alberta, Feb 22 (Reuters) - Harvest Energy Trust HTE_u.TO is studying three options, each with a price tag of at least C$1 billion ($1 billion), to expand or retool its Newfoundland oil refinery after a current round of tweaks to boost efficiency is done, its chief executive said on Friday.

Harvest, which bought the Come By Chance refinery in late 2006, hired engineering firm SNC-Lavalin (SNC.TO) last month to pore over the alternatives and report back by June on the best way to go, Harvest CEO John Zahary said.

It is studying a major expansion of processing capacity, a project to convert about 30,000 barrels a day of low-value residual fuel oil into more valuable low-sulfur diesel or gasoline, as well as installation of new equipment that would allow it to process heavier grades of crude oil.

“This is a refinery that 30 years ago was 115,000 barrels a day — it’s still 115,000 barrels a day,” Zahary told investors at a conference in Whistler, British Columbia.

“We’re one of very few refineries anywhere that hasn’t grown in size over time, so we really see three potential opportunities,” he said in a webcast speech.

An expansion could boost capacity output to as much as 155,000 barrels a day and take two or three years to complete.

The company will not decide to go ahead with a major project before late 2008, spokeswoman Cindy Gray said.

“We will take some time to evaluate in light of the outlook for commodity markets, our capital structure and acceptable financing options,” Gray said.

Until then, Harvest is concentrating on ways to cut C$10 million or more from annual costs by improving energy efficiency and other operating measures, Zahary said.

Studies of the alternatives done by the previous owner, Dutch trader Vitol SA, and the engineering firm Harvest retained to help with the acquisition pegged costs in a range of $600 million to $1.9 billion, sums that are sure to have increased amid widespread industry inflation in recent years.

Harvest, also known for its western Canadian oil production, may consider financing such an initiative through an arrangement with a large international oil company seeking to secure processing capacity, Zahary said.

Harvest “could either use their capital to potentially grow the refinery or potentially use project financing that is backed by a supply commitment,” he said.

Gray said it is possible that a would-be partner could take an equity stake in the expanded capacity or the whole plant, but such details would need to be ironed out after the scope of the project is better known.

Harvest trust units rose 4 Canadian cents to C$24.68 on the Toronto Stock Exchange.

$1=$1.01 Canadian Editing by Rob Wilson

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