Adding daily output of 35,000 barrels a day by 2011 at its Jackfish project may cost C$600 million ($530 million) to C$750 million, the Oklahoma City-based company said in a filing with provincial regulators. The first phase cost about C$550 million, said Chris Seasons, president of Devon's Canadian unit.
``We are seeing some inflationary pressures for sure,'' Seasons, 46, said in a telephone interview. The new estimate is ``quite broad. Will it capture it? I hope so but I'm not 100 percent confident of that.''
Devon's increased estimate reflects rising labor costs as high prices spark a boom in projects to extract oil from Alberta's tar-like deposits, Seasons said. Spending of as much as C$125 billion by Devon and other companies will almost triple production from Alberta's oil-soaked sand to 3 million barrels a day by 2015, Canada's National Energy Board has said.
Once regulatory approval is granted and cost estimates are finalized, Devon will consider sanctioning the expansion in 2007, Seasons said yesterday. The project could be deferred if rising costs mean the project won't generate enough profit, he said.
The expansion's cost was pegged at $500 million in August 2005, according to Devon's Web site.
Each phase of Jackfish will develop recoverable reserves of more than 300 million barrels, he said. The project is located about 140 kilometers (87 miles) south of Fort McMurray, a northern Alberta city that is the hub of oil-sands developments.
Soaring Labor Costs
Another company building an oil-sands project in the region is Nexen Inc. Higher labor costs contributed to Nexen and partner Opti Canada Inc. last month raising the estimated cost of their project 10 percent to C$4.6 billion. The price tag has jumped 21 percent from a February forecast, Nexen said in October.
Royal Dutch Shell Plc's Canadian unit said in July costs for an 100,000-barrel-a-day expansion of an oil-sands project may reach C$12.8 billion, up from an August 2005 estimate of $7.3 billion and the original target of C$4 billion.
The oil-sands boom means companies supplying equipment and contractors to build the projects aren't reducing their fees even though oil and gas prices have fallen, said Steve Laut, president of Canadian Natural Resources Ltd.
Cost pressures on oil-sands projects near Fort McMurray ``are very, very high,'' he said yesterday at a press conference. ``Fort McMurray is like a world on its own, there is still a lot of activity.''
Calgary-based Canadian Natural estimates spending C$6.8 billion on the first phase of an oil-sands project scheduled to produce 110,000 barrels of oil a day by 2008.
Jackfish Output
The first phase of Devon's Jackfish is scheduled to begin production next year and reach capacity in 2008. Phase two aims to start construction in 2008 and production in 2010, according to an application submitted to Alberta energy regulator.
The two phases of Jackfish are expected to produce oil for several decades, according to the filing.
Devon's daily output is equivalent to about 600,000 barrels of oil. Alberta's tar-like deposits represent ``a significant piece of our long-term strategy for the company,'' Seasons said.
Devon is the largest U.S. oil and gas producer among companies that don't own refineries or chemicals plants.
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