UTS Energy Corp. on Thursday issued an update regarding the Fort Hills oil sands project. The project, as currently conceived, consists of an integrated oil sands mine and bitumen extraction plant north of Fort McMurray and an upgrader northeast of Edmonton.
On September 17, 2008, together with its Fort Hills partners Petro-Canada
and Teck, UTS announced that the preliminary results from the Front End
Engineering and Design (FEED) process indicated significant capital cost
inflation for a fully integrated Project. The Fort Hills partners continue to
review the preliminary cost estimates and assess options for development of
the Project, including the phasing of various aspects of the Project. The
selected development option will be reflected in the final FEED report at
which time Fort Hills will develop a definitive cost estimate, which will be
the basis for the final investment decision by the Fort Hills Partnership.
This decision is expected in the fourth quarter of 2008.
While no final decision has been taken by the Fort Hills Partnership, the
partners contemplate making the initial investment decision with respect to
only the mining and extraction portion of the Project. Due to several factors
including costs, current commodity, equity and credit market conditions, the
partners are considering deferral of any decision to construct the upgrader.
This would substantially reduce Project costs prior to first bitumen
production. The Fort Hills Partnership does not yet have a definitive cost
estimate for a stand-alone mine, extraction plant and infrastructure. However,
it is UTS' view that the costs associated with the mining and extraction
project would be in the range of $13 - $15 billion (including pre-FEED, FEED
costs of $1.5 billion, contingency and escalation). UTS' corresponding funding
requirements, after the current earn-in and cash on hand have been spent,
based on this preliminary estimate would be between $1.1 and $1.5 billion
(excluding fees and capitalized interest).
"This is a significant step forward in today's business environment. We
anticipate making the final investment decision on a mining and extraction
project before year end. We believe that proceeding prudently with a bitumen
project would decrease our overall funding requirements, and thereby extend
the duration of UTS' current funding into the first quarter of 2010," said
William Roach, President & Chief Executive Officer. "Moreover, this will allow
more time for the equity and debt markets to recover, at a time when we are
placing the additional funding required for the Project."
Proceeding with the Project is subject to certain regulatory approvals
being received. Fort Hills is working with the regulators and various
stakeholders to obtain the necessary approvals, which are expected in the
fourth quarter of 2008.
The Fort Hills Project, located 90 kilometers north of Fort McMurray, is
held by UTS with a 20% working interest, Teck with a 20% working interest and
Petro-Canada with a 60% working interest and operatorship.