Suncor Energy`s bidding system limits inflation
CALGARY - Suncor Energy Inc. yesterday said it has been able to keep inflation in check on its expansion project in northern Alberta thanks to a bidding system that has been on hiatus for more than 10 years.
Contractors building Suncor`s Firebag 3 oilsands project, an expansion effort, have signed work agreements at fixed prices, protecting the company from paying out more should the project run over budget. Costs skyrocketed around 2008 when inflation swept Fort McMurray and budgets were meaningless.
"Much of the work [at Firebag 3] is actually hardmoney bids, so this is a little bit of a different era," Rick George, Suncor`s chief executive, said in his company`s second-quarter conference call. "We haven`t seen hardmoney bids on a job in over a decade."
Mr. George expects Suncor to strike similar deals on Firebag 4, its next expansion phase. Firebag is a steam-assisted gravity drainage project, which uses steam and wells to extract bitumen, rather than mining equipment and giant trucks. Firebag 3 is "largely" on time and on budget, Mr. George said. He said steaming will begin in 2011, with full bitumen production following two years later.
Cenovus Energy Inc., which also reported its second quarter yesterday, said it is largely isolated from inflation because its oil sands operations are outside the busier Fort McMurray zone. Its contracts are roughly the same as they were in 2009, when prices went down owing to tough economic times.
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