Husky could revisit a decision to expand its asphalt refining capacity around 2019-2020 as heavy oil production in the region grows. Earlier this year, Husky stated it was deferring its decision to build a plant near the upgrader until post 2020 after purchasing the Superior Refinery in Wisconsin that also makes asphalt from Lloyd heavy oil. GEOFF LEE LLS PHOTO
Husky Energy could make a decision on expanding asphalt refining capacity in Lloydminster as early as 2019, as thermal heavy oil production continues to grow in the region.
Husky deferred the investment decision earlier this year to post 2020, after purchasing the Superior Refinery in Wisconsin to further reduce their exposure to heavy oil differentials and meet rising heavy oil production led by Lloyd thermals.
However, CEO Rob Peabody said in a conference call on Oct. 26 to discuss the company’s third quarter results, that a decision on the Lloyd asphalt project could come before the end of this decade.
In the question period, he further refined the deciding timeline to around 2019-2020.
“First, this is a deferral of the original asphalt project,” said Peabody.
“We are going to continue to grow our heavy oil production, so while this addition at Superior will see us through the next three or four years and keep us balanced in terms of heavy oil production and heavy oil processing, in about that time we’re going to have to be looking again what the right approach is to managing that differential exposure.”
Peabody said the purchase of the Superior Refinery will increase Husky’s refining capacity to about 395,000 barrels per day, including about 190,000 bpd of heavy oil processing.
“The deal also links our heavy oil production at Lloyd directly to the U.S. Midwest via a pipeline terminal at Hardisty,” said Peabody.
“It expands the core of our asphalt business, better positioning us to take advantage of growing demand across North America.”
The company reported a net quarterly profit of $136 million driven by higher refining capacity and thermal oil production and cuts to its capital budget.
The Lloydminster Upgrader achieved utilization capacity of 95 per cent on the heels of a successful turnaround in the second quarter.
“We are also working on completing the north leg of the Saskatchewan Gathering System, and that work is expected to be wrapped up in 2020,” said Rob Symonds, Husky’s COO.
“This lines up with the start up of the next tranche of the section of the Lloyd thermal project.”
Meanwhile, production from thermal projects from Lloyd, Tucker in Cold Lake, and Sunrise in the Athabasca Oilsands grew 14 per cent year over year to 118,000 barrels per day.
Symonds reported Lloyd thermal production averaged 76,000 bpd in the quarter, taking into account some summer maintenance.
He said at Rush Lake 2 crews near Maidstone are currently drilling 12 well pairs and construction of the central processing facility is about 50 per cent complete.
“We are moving this project along faster than we expected and now plan to bring it online in the first quarter of 2019 – that’s a quarter earlier than the timeline we set up on investor day,” he said.
Site clearing has commenced at Dee Valley and clearing will begin at Spruce Lake North and Central in the Lloyd region in the coming months.
Combined with Rush Lake 2, these projects will add another 40,000 bpd of heavy oil capacity when they come on line in 2019 and 2020.
In the question period, Symonds explained how Lloyd heavy oil thermals in particular are driving the company’s production growth.
He said capital costs are coming down on the thermal sites that are built in the region using a template design.
“We’ve been building the same plant many times, and as a result, we are seeing the improved efficiencies that’s been reflected in our acceleration,” he said.
Peabody said he toured Rush Lake 2 about a month ago and told the conference he had never seen such an organized site.
“It really shows what happens when you can do something seven times in a row literally right down to where they place all the equipment on site to construct the facility,” he said.
“They know exactly where each piece goes at any given moment to achieve the maximum productivity.”
Husky’s next conference call in December will provide an operational date and capital spending plans and estimates for 2018.
So far this year, Husky has reduced its original capital spending budget for the year by $400,000 from $2.6 billion to $2.2 billion to cut costs.