“Getting past winter will put us in a better position for a smooth start up and should lead to a more consistent ramp up during the rest of 2008 and 2009,‘‘ Dykstra told a conference call with analysts Friday.
As well, first crude has been delayed to late in the second quarter of 2008 from the end of this year. Full production capacity is expected about 12 to 18 months after startup.
Dysktra said the companies had hoped it could overlap some of the startup with construction activities and catch up on its schedule.
“However after intensive review and based on recent experience at other refineries we have determined that the best way to achieve a sustainable and safe startup is to wait until construction is complete,‘‘ he said.
“The other reality is with the construction extension a lot of the start up activities have been pushed to the dead of winter. As a result we have added time and capital for cold weather work and more importantly having extended the schedule to allow certain key units to start up in the second quarter after the cold weather months.‘‘
Nexen and Opti cited the pace of completion of the sulphur recovery unit, access to labour, workforce productivity and the pace of commissioning activities as reasons for the ballooning costs and delay in construction.
However despite the setback, investors held steady on the companies.
Opti Canada shares closed even $19.50 in trading on the Toronto Stock Exchange Friday, while Nexen shares were up 83 cents at 29.53.
Desjardins Securities analyst Adam Zive was surprised by the size of the capital cost increase due to the late stage of the project development and an increase in cost estimates only four months ago from $4.6 billion to $5 billion plus an additional $300 million contingency reserve.
However despite a decision to lowered his price target on Nexen from $41.50 to $40 due to the higher costs, Zive maintained his top pick rating on the stock.
“Although this is another disappointing announcement for the company, Nexen remains attractive on a fundamental valuation,‘‘ Zive wrote in a note to clients.
Dykstra suggested even with the higher costs, the project will still make money.
“In a US$65 WTI world, this plant is expected to generate EBITDA of over $1 billion a year on a 100 per cent basis, every year for the next 40 years. The overall economics of the project remain very positive,‘‘ he said.
However the company said it will need clarity on the regulatory and fiscal environment before it makes a decision to go ahead with the second phase of the project.
“We‘re planning an aggressive core hole drilling program this winter, so expect to be in a position to sanction Phase 2 by the end of 2008,‘‘ Dykstra said.
Located 40 kilometres southeast of
Opti and Nexen own three leases in the Athabasca oilsands region:
PIN/Oilweek.Com
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