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Future oilsands phases to include CCS technology, CNRL vice-chair says

CALGARY - Canadian Natural Resources Ltd. (TSX:CNQ) expects to give the green light to two of its oilsands projects late this year, the vice-chairman of the Calgary-based energy company told a CIBC investor conference Thursday.

CALGARY - Canadian Natural Resources Ltd. (TSX:CNQ) expects to give the green light to two of its oilsands projects late this year, the vice-chairman of the Calgary-based energy company told a CIBC investor conference Thursday.

The big oil, gas and oilsands operator will spend the next several months working on the design of the Horizon oilsands mine's second phase to ensure its size and scope are manageable, said John Langille.

"I think that hopefully by the end of 2010... we will be at a point where we'll sanction the next expansion," he said.

The first phase of Horizon began churning out synthetic crude oil just under a year ago. After some technical glitches last year, Langille said his company expects production rates to reach a steady level of 110,000 barrels of oil per day around the middle of this year.

Canadian Natural Resources is also close to kicking off work on its Kirby project, about 85 kilometres northeast of Lac La Biche, Alta.

"We're into our final stages of engineering to get a firm handle on our costs and we're targeting to sanction that project late this year and start spending money in 2011," Langille said.

Unlike the Horizon open pit mine, Kirby will use an extraction method called steam-assisted gravity drainage, or SAGD, in which hot steam is injected into the ground to soften the sticky oilsands bitumen, enabling the oil to flow up to the surface in a separate collector pipeline.

SAGD projects did not see the same degree of sharply rising costs that open-pit mining projects did at the height of the boom a few years ago, Langille said.

"Those projects still had a reasonably good handle on the costs," Langille said.

Open pit oilsands mines such as the Athabasca, Aurora and Millennium projects in northern Alberta require giant shovels and trucks to carry tar-like bitumen to processing stations, pipelines and upgrading refineries often many kilometres away. They need more capital investments and a larger workforce, so the development costs can run into the billions of dollars.

Two other announcements were made this week about major SAGD projects going ahead.

On Wednesday, Husky Energy Inc. (TSX:HSE) said it and its British partner BP PLC would spend $2.5 billion on their joint Sunrise oilsands project - a more than $1-billion reduction from the development's previous pricetag.

Preliminary engineering work on the project has wrapped up and the company has all of the provincial and federal regulatory approvals it needs to go ahead.

Assuming Husky and its British BP give the green light to the project, Sunrise is set to begin construction in the second half of this year, with production ramping up in 2014.

On Tuesday, Total SA (NYSE:TOT) and ConocoPhillips (NYSE:COP) said they would press ahead with the second phase of their Surmont oilsands project, quadrupling its current production of 27,000 barrels per day to 110,000 barrels per day by 2015.

At the CIBC conference, Langille said its future oilsands phases would include carbon capture and sequestration technology that would not only reduce its greenhouse gas emissions, but will lead to more efficient water use as well.

About 15 per cent of the carbon coming out of the company's new hydrogen plant will be captured and then injected into tailings ponds, which hold old wastewater left behind in the oilsands extraction process.

"The tailings basically go through a chemical process and they will sink faster in the tailings ponds than normal," said Langille.

That means the company doesn't need to use as much natural gas - a major cost for oilsands producers - to heat the water as it recirculates back into the plant.

Oilsands producers in general need to come to grips with the fact that there will be a cost put on carbon emissions in some form or another, Langille said.

"I know right now it's still a big question mark as to where that's going to sort out and it would be nice I guess if (the United Nations climate change summit in) Copenhagen had have come out with some hard and fast rules or at least some pretty strong guidelines," he said.

"But right now we're still in a bit of a guessing game. I would say overall we have to be prepared for some kind of a cost on CO2."

In Thursday trading on the TSX, Canadian Natural shares fell 10 cents to $71.53.

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