A Sign of Life in the Oil Sands

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To put it mildly, the recession has not been kind to oil sands projects. These massive operations, in which an extremely thick, heavy crude oil is typically dug out of the earth and trucked to an upgrader for processing, are hugely capital intensive. Just last year, Teck Resources (NYSE: TCK) and Petro-Canada (now part of Suncor (NYSE: SU)) saw the estimated cost for their Fort Hills project balloon to roughly $20 billion.

That kind of money isn't so easy to come by these days. Combine that price tag with a knocked-down oil price and uncertainty about the macro economy, and it's suddenly very hard to justify a giant oil sands investment. Even smaller projects, like Enerplus Resources Fund's planned in-situ operation at Kirby, have been shelved.

That's why it was interesting to see Imperial Oil (AMEX: IMO) talking last week about expanding its Cold Lake operations. The expansion, if embarked upon, would mark phases 14 through 16 of a multi-stage development that stretches back to the early 1980's. Like Enerplus' Kirby and Devon Energy's (NYSE: DVN) Jackfish assets, Cold Lake is an in-situ project that uses steam injection, rather than big shovels, to recover oil.

A Cold Lake expansion wouldn't even be Imperial's boldest move this year. The firm's Kearl oil sands mining project is even bigger potatoes. Fluor (NYSE: FLR) recently announced that it will book $1.5 billion in revenue for early-stage work on the project in 2009. Imperial's partner at Kearl? None other than majority owner ExxonMobil (NYSE: XOM).

Ah. That explains quite a lot. Between moving forward with major investments while other Canadian operators cower, and repurchasing a slew of shares to boot, Imperial is rather reminiscent of the greatest company in the history of the world.

So does this signal some movement in the oil sands business? Keep an eye on oil sands players like Suncor and Total SA (NYSE: TOT), and decisions regarding their stalled projects, for further confirmation.