Fort Hills project doubles in size

Sandwiched between Syncrude’s big Aurora mine and the Albian Sands project led by Shell Canada (SHC-T), the Fort Hills oil sands development in Alberta has announced it will be in production by 2005 and turn out twice the amount of oil originally planned.

Operated by TrueNorth Energy, a subsidiary of private U.S. oil and utility company Koch Industries, Fort Hills covers about 180 sq. km near Bitumount, 90 km northwest of Fort McMurray. TrueNorth’s partner, UTS Energy (UTS-T), owns 22% of the project.

The project has a reserve of 2.8 billion barrels of recoverable crude oil and was originally slated to produce 95,000 barrels annually, starting in 2005. With the acquisition of a further 23 sq. km at a Crown lease auction in December 2000, there was a big enough resource available to justify doubling the size of the project.

The Fort Hills project is also the answer to the loaded question, “whatever happened to Solv-Ex?” The major part of the land package was held by Solv-Ex, the New Mexico-based company that sought bankruptcy protection in 1997 following the failure of its plan to produce oil from the sands using solvent extraction and to produce aluminum and titanium oxides from the process tailings using “proprietary processes.” Solv-Ex was delisted in the late summer of 1997 after filing for protection.

UTS, with backing from Koch Industries, bought Solv-Ex’s property holding in early 1998 and set about a reserve definition program. By early 2000, the partners were looking at the feasibility of a conventional oil sands operation — no solvent extraction, and no supposed metal recovery from the tailings — with a partial upgrader to provide feed to Koch’s refinery at Pine Bend, Minn.

The limited upgrading is expected to provide a cost advantage, though presumably the product would not command the premiums associated with the fully upgraded synthetic crudes produced by Syncrude and Suncor.

Feasibility work has been under way since 1999, but capital cost estimates from 2000, which indicated the project could be brought in for $1.1 billion, have proved to be low. Later estimates boosted the capital cost estimate to $2 billion, but the expansion has added a further $1.3 billion to the capital cost. In its most recent disclosures on the progress of the feasibility study, True North did not quote a projected operating cost, but its estimate in January 2001 was $5.60 per barrel.