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Petro-Canada Boosts Size of Planned Montreal Coker

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    By Ian McKinnon Dec. 15 (Bloomberg) — Petro-Canada, the third-biggest oil company in the country, said increased size and more detailed engineering have boosted costs for a processing unit at its Montreal refinery by as much as two-thirds.
    The proposed coker, scheduled to be built by 2010, will process 25,000 barrels a day of oil, up from an original design of 20,000 barrels a day, Chief Executive Officer Ron Brenneman said today in an interview. The processing unit will cost C$750 million ($647.6 million) to C$1 billion, compared with an estimate of about C$600 million in October.
     
    “The size of the project has gone up considerably, which means there is more throughput and therefore better economics,” said Brenneman, 60. “It’s not so much cost of inputs as better definition of what needs to be done” that raised the estimated price tag, he said.
     
    Canada, Venezuela and other producers are increasing their output of heavy oil. This is spurring investment in refinery conversion projects, with companies such as BP Plc and ConocoPhillips announcing plans to spend billions to boost the capacity of their U.S. refineries to process more heavy oil.
     
    The coker project will enable Petro-Canada to have “lower input costs than their competition,” said Martin Molyneaux, an analyst with Calgary brokerage FirstEnergy Capital Corp. “A coker can add 2 or 3 percent” to Petro-Canada’s annual returns, he said.
     
    Completing the project on time is a risk for Petro-Canada because of heightened competition for specialized equipment and material used to build cokers, said Molyneaux, who rates Petro- Canada as “top pick” and owns an undisclosed number.
    Heavy Oil Costs
     
    The coker will enable Petro-Canada to process heavier grades of oil at its Montreal refinery, which can handle about 130,000 barrels a day. Heavy oil costs less than lighter grades, such as the benchmark West Texas Intermediate crude traded on the New York Mercantile Exchange, because additional equipment is used to process heavy oil into fuels such as gasoline and diesel.
     
    Petro-Canada estimates it will earn a return of 15 percent on the Montreal coker, based on the price difference between light and heavy crudes, Brenneman said. Heavy oil from Mexico sells for almost $15 a barrel less than West Texas Intermediate, according to Bloomberg data.
     
    “The bet, going forward, is that the spread will essentially be what it has been for the last five years,” he said. “I personally think it’s going to be better than that.”
     
    Based on prices in 2006, the Montreal project would generate a return of more 20 percent, he said.
    Shares of Petro-Canada fell C$2.51, or 4.9 percent, to C$49.13 on the Toronto Stock Exchange. The stock has gained 5.3 percent this year.
     
    Imperial Oil Ltd., owned 70 percent by Exxon Mobil Corp., is Canada’s largest oil company by 2005 sales, followed by EnCana Corp.
     
    To contact the reporter on this story: Ian McKinnon in Calgary at imckinnon1@bloomberg.net .

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