July 21, 2010

Oilsands- Koreans Teams up

By Dan Healing, Calgary Herald July 21, 2010 2:04 AM


A $7-billion-a-year Korean construction firm has been contracted by Korea's state oil company to build an oilsands project in northern Alberta, a first for both companies.

GS Engineering & Construction Corp., which builds oil, gas and petrochemical plants, as well as buildings, roads, bridges and harbours around the world, has been awarded the $300-million contract to build the 10,000-barrel-a-day BlackGold Phase 1 project by Korea National Oil Corp.

Regulatory approval for the steam-assisted gravity drainage facility, estimated to cost a total of $400 million to $450 million, was received last year and the company recently filed the paperwork for a 20,000 bpd expansion.

The deal is part of continuing trend by Asian companies to invest in the oilsands to ensure their future energy needs, although there is no current direct bitumen conduit from Alberta to Asia.

KNOC has said it aims to double its worldwide production to 300,000 barrels of oil equivalent by 2012 -- Korea is the seventh largest oil consumer in the world at 2.3 million barrels a day and the fifth largest oil importer.

The BlackGold facility is expected to produce first bitumen by late 2012 or early 2013, and will be operated by Calgary-based Harvest Energy Trust, which KNOC bought for $1.7 billion in December.

"We've been looking at it and now we feel comfortable proceeding with that project," said John Zahary, Harvest president and CEO, adding the technology will be classic SAGD, where steam is injected into the formation with a horizontal well to melt the heavy, sticky oil, which is collected in a second horizontal well.

It's expected to have an average steam-oil ratio of around 3-1, similar to other in situ thermal projects in the area south of Fort McMurray.

The company has not decided whether to use pipeline or truck to get the product to market. "There are number of different options," said Zahary. There is no plan to upgrade the bitumen in-house.

Services sector analyst Jeff Fetterly of CIBC World Markets said the introduction of foreign players in oilsands construction creates an "interesting dynamic" as the pace of resource development heats up in northern Alberta.

"The sense I get and the feedback I get talking to most of the service companies leveraged to the maintenance side or the construction side of the business is there will probably be more than enough work to go around for everyone," he said. "There is a lot of specialist knowledge in terms of understanding where you're developing this project and the region you're working in where the domestic companies are at an advantage, but it's also a function of what the capacity is going to look like."

He pointed out that a foreign general contractor will likely dole out hands-on work to local companies.

But Gil McGowan, president of the Alberta Federation of Labour, said there's no guarantee the project will create jobs for Albertans, adding that unions in Korea have criticized GS's safety record.

"This may end up being the worst of all worlds for Albertans," he said. "We face the prospect of losing jobs in both construction and upgrading if this project is allowed to proceed."

On its website, GS lists one North American office, in Houston, and 10 in Asia and the Middle East, including two in China. It says it had record revenue and earnings in its last fiscal year, generating 569 billion won ($492 million) in operating profits on revenues of 7.8 trillion won ($7 billion).

KNOC acquired the Black-Gold leases in August 2006.

Other Asian stakes in the oilsands are held by Chinese and Japanese interests.

China Investment Corp. has a 45 per cent stake in Penn West's Peace River oilsands assets, Petro China has invested $1.9 billion in Athabasca Oil Sands Corp., Sinopec has a 50 per cent interest in the Northern Lights oilsands project and recently bought a nine per cent stake in Syncrude Canada, while China National Off - shore Oil Corp. has a 16.7 per cent interest in privately held oilsands developer MEG Energy.

Japan Canada Oil Sands Ltd., owned by a Tokyo Stock Exchange-listed company, applied in April to expand its 8,000-barrels-a-day pilot SAGD oilsands project at Hangingstone by 35,000 bpd.

dhealing@theherald.canwest.com

Read more: http://www.calgaryherald.com/business/Korean+firms+team+oilsands+project/3303044/story.html#ixzz0uJ2YcX6Z
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