Newest oil sands mine on the Horizon

The latest oil sands development to be approved is the Horizon mine and on-site upgrader project 70 km north of Fort McMurray, Alta. Horizon is owned 100% by Canadian Natural Resources Ltd., a Calgary-based senior oil and natural gas production company with operations in western Canada, the U.K. portion of the North Sea and offshore West Africa. The company is financially strong, recording record results in 2004: $1.4 billion in earnings and $3.8 billion in cash flow, and assets of $5.0 billion at year-end.

Canadian Natural’s interest in mining oil sands dates from 1999 when it purchased British Petroleum’s oil assets in Canada, including the 46,500-ha Horizon property. Canadian Natural announced in May 2001 its plans to proceed with a long-term, large-scale oil sands project on the property. The company submitted an application to the Alberta Energy and Utilities Board in July 2002. Some adjustments were needed to the scope and cost of the project before it received final approval at the end of 2004. Detailed engineering and procurement had already begun in mid-2004; construction began immediately following board sanction in February this year.

Steve W. Laut, president and COO of Canadian Natural, said in a June 2005 interview, “Horizon will have a significant effect on the company. The mining operation’s a much more sustainable operation [compared with conventional oil and gas wells], so you don’t have to replace reserves every year. It will generate significant free cash flow for the company. The oil sands will contribute a quarter to a third of the company’s revenue, when it’s at full capacity. We are already the second largest oil and gas company in Canada, and it will taken us to an even higher level.”

This will be one of Canada’s largest oil sands operations. Drilling has indicated an in-place resource of 16 billion bbl of bitumen, of which about 6 billion bbl is potentially recoverable using existing mining technologies. There are additional resources with in situ recovery potential on the western parts of the leases.

The three-phase project will have a capital cost of $10.8 billion including contingencies. Phase 1 will see the mine begin to produce sweet synthetic crude oil (SCO) in the second half of 2008 at a daily rate of 110,000 bbl. This will increase to 155,000 bbl/d SCO with Phase 2 in 2010, and to 232,000 bbl/d SCO at full capacity in 2012, with the completion of Phase 3. (The last amount is more than 8% of all the oil now produced each day in Canada.) Operating costs including sustaining capital are expected to be $14-$14.25/bbl, when Horizon is fully commissioned. At a benchmark of US$28/bbl WTI, the internal rate of return for the project will be a robust 15%, with free annual cash flows of more than Cdn$1.6 billion throughout the mine life of more than 40 years.

The company spent time and money on up-front project engineering and pre-planning to reduce its financial and technical risks. By the time of the go-ahead decision, Canadian Natural had already hired a variety of firms with lump-sum or fixed-cost bids covering 68% of the Phase 1 costs. By mid-June, the company had awarded $2.7 billion in contracts, and was in the tendering process for another $1.8 billion in commitments.

The economic benefits will be substantial. Horizon will have an annual operating budget of more than $740 million, and is anticipated to plow about $24 billion into the Alberta and Canadian government coffers over its lifespan.

Mining, treatment and upgrading

Horizon will be a truck and shovel operation, mining 450,000 tonnes/day of oil sand sequentially from two main pits surrounding the plant/camp complex. Noramac Ventures Inc. has begun to strip overburden from the first site. A relocatable ore preparation plant from Krupp Canada Inc. and Stantec will crush the ore, slurry it with water and pump it to a central bitumen recovery plant.

Primary separation cells with flotation banks will extract bitumen from the warm slurry. Next comes naphthenic froth separation, a technique developed, piloted and proven by Canadian Natural. AMEC is the EPCM consultant for the extraction plant and corridor pipelines, and SNC-Lavalin is handling EPCM for the froth treatment plant. The main plant site is being prepared by Noramac, Thompson Brothers, AC&T, Bird Construction, PTI Group and others, and plant engineering is underway. Construction will begin this August and be complete in December 2007.

During Phase 1, tails will be sent to a conventional tailings pond. The company is considering using non-segregating tailings disposal, probably in Phase 2, so the fines drop out of the tailings sooner. The benefits are that the tailings pond can be smaller, leaving less of a footprint; reclamation can begin earlier; and more water is recycled and still warm, so less heating is required, which cuts the operating costs. Plus the foul odour is reduced. Canadian Natural is helping fund a $2.2-million oil sands tailing research facility that is developing novel approaches to oil sands tailings treatment. This opened last year in Devon, Alta., and is part of the University of Alberta.

The cleaned, diluted bitumen from the froth treatment plant will be sent to the upgrader on the site that will employ delayed coking using technology by Technip of Italy. This will recover 99% of the sulphur using a tail gas cleanup unit by Kiewit Industrial Canada and AP. All of the product will be hydrotreated making the oil ‘lighter’; the design and equipment are by Snamproggetti (Italy) and SNC-Lavalin. The product will be 34* API light, sweet SCO.

Fluor Canada Ltd. is providing engineering, procurement and construction management resourcing services for utilities and offsites, and Black & Veatch is taking care of engineering and procurement for the cogeneration plant.

Canadian Natural is using proven technology and numerous licensing arrangements. “A lot of it’s new technology but all proven,” says Laut. “This is going to cost a lot of money–$6.8 billion to get the first phase up–so we’re not willing at this stage to take any technology risk. We may end up using innovations in the second phase and the third phase.”

Despite June’s record-breaking rain and floods in southern and central Alberta, the province is usually more concerned about water shortages. The water source for the various Athabasca oil sands operations is the Athabasca River.

When asked whether Horizon represents an additional water consumption burden, Laut answered: “We’ve built a 1.83-million-m3 raw water pond into our project, which we will fill during high-water periods and use if the water [in the Athabasca River] ever does get low, and we don’t expect it to. We’re in northern Alberta, which is much wetter than southern Alberta. If the river does go low, we can stop our intake and just use the pond, which will have about 45 days of water supply. Obviously, the biggest consumption for us will be when we start the plant up. Once we’re up and running, we’ll recycle as much of the water as we possibly can.”

Workforce and community

The Horizon leases and the region include the traditional lands and current settlements of a number of First Nations bands. Therefore the company is restricting access along some of its roads to First Nations people, so other hunters cannot gain access to the back country.

Canadian Natural is also involving Aboriginal people directly in the project, through employment in the construction, and as consultants for traditional environmental knowledge. Laut says his company has developed a co-operative relationship with the local bands, particularly the Fort McKay community, which is closest to the site. A more formal multi-stakeholder agreement signed with the Athabasca Tribal Council in 2003 included specific agreements about the Horizon project with Fort McKay as well as the Mikisew Cree First Nation and the Athabasca Chipewyan First Nation.

“We’re working as closely as we can with the bands on employment an
d training,” says Laut. “One of the companies that’s doing a lot of the construction work right now is a joint venture with the Fort McKay band. It’s good for us, it’s good for them, and it’s good for all of Canada.”

Horizon will employ up to 6,000 people during peak construction (summer 2007), and eventually have about 2,400 operations people. The three-phase development is intended to spread the construction work and materials supply over a longer period. The two construction camps and the administration complex are being built by PTI Group.

The company’s labour strategy includes having a “managed open site”, with employment available for union, alternative union and non-union members. The benefits include no strikes, no lock-outs and no raiding for the construction and commissioning phase. This will ensure that the large labour force is manageable and fair.

Horizon will be unique in that it will have regular air service, with the airstrip and aerodrome being completed by E Construction in September 2005. (Other mining operations right now bus people in from Edmonton or Fort McMurray to the camps along a congested highway.) Laut sees this as a competitive advantage, in a very tight market for skilled labour. “We’ll be trying to draw skilled labour from all across Canada as well as Alberta. You’ll be able to fly in with a 737 right up to the campsite. We’ll fly from Edmonton, but that doesn’t stop us from flying people from the Maritimes or Ontario or B.C.” There will probably be a variety of work shifts. Likely 10 days in/four days out will be the most common, but workers with longer distances might want to work 21 days in/seven days out.

Canadian Natural is in the hiring mood. “We’re looking for good people to come and work at the site,” says Laut. “We’re looking at all trades and all technical people. Fort McMurray is actually a great place to live. There are great jobs, and the fly in/fly out will allow people to earn a Fort McMurray wage while living in an area that maybe has a lower cost of living.”

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