Canadian Natural Resources Ltd. (CNRL) is going to need every cent of its record-high $1-billion cash flow reported this third quarter.

The money will be needed to pay for a 22-per-cent jump, to a whopping $9.7 billion from the original $8.5 billion, for the company’s Horizon oilsands mega-mine north of Fort McMurray.

CNRL chief operating officer Steve Laut and oilsands chief Real Doucet blamed the increase on rising costs of steel, fuel and labour. The eventual cost of Horizon could climb to as high as $10.5 billion in what CNRL calls its “contingency” or worst-case scenario.

The three-stage open-pit mine, which will eventually produce 232,000 barrels of oil per day, is only the latest in a dizzying string of projected or actual cost overruns on oilsands projects. Other companies that haven’t been able to out-wrestle multibillion-dollar overruns include Syncrude Canada Ltd., Suncor Energy Inc. and Shell Canada Ltd.

So my question is: Don’t these mega-projects come with economic forecasters?

I’m talking about the financial experts who look down the road a few years and arrive at educated estimates on what the cost of steel, fuel and labour are likely to be, and how this will affect long-term project costs.

And if the economic forecasters are on the job, how come they’re always low-balling the initial estimates of what these oilsands plants are going to cost? It doesn’t take much of a calculator to figure out that some $60 billion worth of ongoing or proposed oilsands projects will increase demand for steel and labour.

CNRL has a reputation in the oilpatch for carefully controlling costs.

But maybe it’s time for investors, when they’re looking at any oilsands operator’s bottom line, to start pushing companies to produce more accurate – or at least realistic – cost projections of expansions and new projects.

The Calgary-based Canadian Energy Research Institute (CERI), in its regular Energy Insight report, recently noted that oilsands industry supply costs “are higher than those published previously and many challenges face the industry.”

Several planned oilsands projects will require “innovative commercial and technological solutions” to mitigate downside risks, CERI says.

One innovation that companies could start with is economic forecasters who can look past their noses.

Gateway To Opportunity

Oilsands crude is still coming down the pipe, as far as Enbridge Inc. is concerned.

Enbridge CEO Pat Daniel says the continuing cost overruns in the oilsands won’t derail his company’s plans to build a 1,200-kilometre pipeline from Edmonton to either Kitimat or Prince Rupert in northern B.C.

Enbridge’s $2.5- to $3- billion “Gateway” pipeline would ship 400,000 barrels per day of oilsands crude to the coast and from there to markets in Asia or California.

Yes, the Loonies are disappearing into the Alberta tarsands faster than sabre-tooth tigers. But by the end of the decade, that investment is expected to double the current oilsands production of about one million barrels per day.

Enbridge is in a race to carry that crude oil with Vancouver-based Terasen, which proposes to spend up to $2.5 billion to either twin its existing Trans Mountain pipeline from Edmonton to Vancouver or run a new northern leg of the line from Jasper to a deepwater port in either Prince Rupert or Kitimat.

Neither company has yet to announce any contracts with oilsands producers or downstream refiners and markets in Asia.

But Daniel says he’s encouraged by interest in a new pipeline, especially in Southeast Asia, and Enbridge still intends to have its Gateway line up and running by late 2008-09.

EnCana Tends Home Fires

EnCana Corp. is going against the flow of multinational oil business by bailing out of the North Sea and focusing on developing unconventional natural gas in North America.

But it looks like a shrewd, shareholder-driven strategy by EnCana CEO Gwyn Morgan, at least for the next decade or so.

EnCana announced last month that it was selling its major Buzzard oil discovery in the North Sea to Nexen Inc. for $2.1 billion US.

EnCana, Canada’s largest oil and gas company, also said it’s putting its controversial Ecuador oil pipeline venture and its holdings in the Gulf of Mexico up for sale.

The company’s Deep Panuke natural gas discovery off Canada’s east coast may be next on the block.

So is EnCana beating a hasty retreat to North America? No, it’s more like a calculated retrenchment in what the company does best.

Morgan’s strategy in the past year has been increasingly to focus his firm on big North American resource plays, especially so-called tight reservoirs of natural gas along the Rockies. These are proven reserves that can be steadily produced for 30 years or more, with continually declining operating costs after the initial investment in drilling.

Unless George W. Bush decides to march the U.S. Marines across the 49th parallel, EnCana’s North American assets are reliable and safe, as opposed to high-risk offshore exploration or geopolitically volatile properties in foreign lands.

At the same time, Morgan is betting that natural gas prices will remain high enough to support EnCana’s assembly-line approach to gas production, rather than an expensive hunt for increasingly rare “elephant” discoveries.

It looks like a pretty safe bet for the next 10 to 15 years, until tanker-loads of liquefied natural gas and pipelines filled with Arctic gas start to flood the North American market.

But as long as gas prices stay robust until then – and there’s no reason to believe they won’t – Morgan will have delivered shareholders a steady, predictable return on their investment.

CBM Stakeholders Invited

Unconventional gas producers deserve a lot of credit for providing the public with a platform at the sixth annual Unconventional Gas Conference, especially with the anxiety around intensifying coalbed methane development (CBM).

The Nov. 17-19 conference in Calgary, hosted by the Canadian Society for Unconventional Gas (CSUG), includes a special Stakeholder Day on Nov. 19.

The industry group has invited community members to take part in a discussion of current public policy and external stakeholder issues surrounding the development of CBM and other unconventional gas resources.

The conference will bring together members of community and environmental groups, government representatives from Alberta and B.C., and members of the unconventional gas industry.

CSUG has even set up two special, low-cost Stakeholder Day registration packages for both local residents and out-of-town visitors who want to catch the day’s presentations.

Some 3,000 CBM wells are expected to be drilled next year, up from about 1,000 this year, according to the Petroleum Services Association of Canada.

The Alberta Wilderness Association says extensive CBM development is being planned in the 144,000-sq.-kilometre protected Rumsey Natural Area in east-central Alberta. Companies lining up to drill include EnCana Corp., Canadian Superior, Canadian Natural Resources Ltd., Husky Oil, Pioneer Natural Resources and Trident Exploration, according to the conservation group.

So if you’re concerned about CBM development, this is an excellent opportunity to learn more about the resource and how it’s being developed in Western Canada. For more information, call (403)-218-7720 or visit www.ptac.org/techcbmf.html

Flaring Cut

The world-class success story that is Alberta’s Clean Air Strategic Alliance (CASA) just keeps getting better.

CASA, a multi-stakeholder, consensus-based group that includes the oil and gas industry, government and environmental and health organizations, has spearheaded an effort that has reduced oilfield gas flaring across the province by 70 per cent since 1996.

Now, CASA has reached an agreement that’s expected to further cut flaring by 78 per cent from 1996 levels, as well as reduce venting (where waste gas is released without being burned) by more than 70 per cent from 2000 levels.

CASA has also recommended new time limits on flaring used to test well flows and a new program to collect data on well test-flaring to set a provincewide cap after Jan. 1, 2006.

Albertans are breathing a lot cleaner air these days than they were a few years ago. CASA deserves much of the credit.

(Mark Lowey can be reached at mark@businessedge.ca)