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<H1>Imperial cost projections for Kearl mine jump nearly $3B</H1></DIV>
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<DIV class=byline><SPAN class=name>By Shaun Polczer, Calgary Herald</SPAN> <SPAN
class=timestamp>May 28, 2011</SPAN> <SPAN id=lblComment
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<P>The projected cost of Imperial Oil's Kearl oilsands mine has climbed to $10.9
billion, almost 40 per cent higher than original estimates of about $8 billion,
the company confirmed Friday.</P>
<P>Imperial made the disclosure at an investor open house a day earlier, but
said the higher price tag is due to modifications to the original design as
opposed to widespread overruns.</P>
<P>Imperial last October announced it was reducing the number of phases for the
mine to two from three and eliminating a third production train.</P>
<P>In addition to higher prices for labour and construction materials like
steel, company officials said changes to the original project design also
contributed to the increase.</P>
<P>Spokesman Pius Rolheiser said Imperial "is subject to the same cost pressures
as the rest of the industry," but insisted the higher price is mostly a result
of changes in scope.</P>
<P>"It's primarily a function of the reconfiguration of the project," he said.
"What we're currently building at Kearl is different from what we originally
envisioned."</P>
<P>The initial first phase is scheduled to produce 110,000 barrels per day by
late 2012, rising to 345,000 bpd by 2020.</P>
<P>Earlier this week the company admitted it has been forced to alter its
construction schedules due to delays delivering process equipment from the U.S.
to the Kearl mine site as a result of legal challenges in the states of Idaho
and Montana against plans to move oversized loads on state highways.</P>
<P>Media reports last week stated the company is spending up to $500,000 each to
disassemble the first 33 modules and make them smaller to move on Interstate
highways. More than 200 loads are waiting to be shipped from Lewiston to Fort
McMurray.</P>
<P>Rolheiser said the U.S. delays "haven't had a significant impact" on
costs.</P>
<P>Analysts seemed taken aback by the size of the increase, prompting CIBC's
Andrew Potter to cut his target price on the stock to $48.50 from $50 as a
direct result of the higher Kearl costs.</P>
<P>Even after accounting for changes to the scope of the project, the new
numbers suggest "apples-to-apples" cost increases on the order of 20 per cent,
he said in a report.</P>
<P>"While Kearl is a high-quality mine, we believe the economics pale in
comparison to most major growth projects (such as) shale gas, tight oil or
SAGD."</P>
<P>But Barclays' Paul Cheng maintained an "overweight" rating on the stock with
a $60 US target even though Kearl's budget is about $900 million more than
expected.</P>
<P>"We maintain our positive view on Imperial and continue to believe that the
company is an attractive hidden oilsands gem that has been overlooked by the
market."</P>
<P>Imperial is 70 per cent owned by ExxonMobil, the world's largest oil company.
Imperial's shares fell four cents on the Toronto Stock Exchange Friday, to
$47.88.</P>
<P>spolczer@calgaryherald.com</P></DIV></DIV></DIV></DIV></DIV></FONT></DIV><FONT
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