Harvest Energy plugging ahead with expansion plans
Despite the recent economic crisis in the United States, Harvest Energy is going ahead with expansion plans at the Come By Chance refinery. Transcontinental Media file photo
Clarenville - It's a matter of finding the money. And that's something that may be a little more challenging, given the turmoil in stock markets around the world.
And it's no small change that Harvest Energy Trust is seeking.
The company aims to find a partner, or partners, willing to invest $2 billion in a major upgrade to the refinery at Come By Chance.
The upgrade would see the installation of a coaker, a unit that is able to process heavier crude oil.
John Zahary, CEO of Harvest Energy, told The Packet recently, there are just two scenarios.
Either they find a financial partner or they don't. If they find the money soon, it means the company can start planning the construction phase. If the money is hard to find, however, it doesn't mean the upgrade will be cancelled.
"We simply defer the project until we can get the financing in place," said Zahary.
CBC radio and television reported last week the credit meltdown in global markets was putting the refinery expansion in doubt, and could delay the project until 2010.
In fact, when Zahary was guest speaker at the Clarenville and Area Chamber of Commerce last year, he was not specific on timelines for the potential expansion.
He told the group the company was making a "sizeable investment" in a visbreaker - work on that project is underway at the refinery - and considering a more complete upgrade for processing of heavy fuel.
The expansion was always contingent on financing, he said, adding the company is exactly where it said it would be when it started talking about the expansion last year.
"We said we were going to do the pre-engineering work in six months, which we did do, and that once the engineering was done we would look for financing over the next few months, and we're right in the middle of that.
"We said it would take one year to do the engineering work (on the major upgrade) and another five or six years to complete construction."
He acknowledged, however, the current situation on global stock markets is making the financing aspect of it more challenging.
Noting the New York and Toronto stock exchanges have lost half their value in the past few weeks, Zahary acknowledged, "The world is a more uncertain place today so if you have to go to those credit and capital markets, it's a lot more complicated today than it was one or two years ago."
Still, Harvest Energy is not looking for financing from the usual lenders.
"The people we're talking to are the kind of people who would have enough money to do this because they are very large international oil companies. So some of them would have the available cash if they wanted to us it."
Zahary said Harvest Energy has already invested about $2 billion in the refinery.
They bought the refinery for CDN$1.6 billion.
"We have some flexibility to make some contributions (to the coaker project), but our plan is to find a partner to invest in this," he said, adding the money could come from one partner, or several financial backers.
In addition to the $2-billion coaker project, Zahary said Harvest has a series of projects planned for the refinery.
"We have a whole series of other projects which includes ongoing maintenance - at $20- to $30 million a year; as well as other growth projects."
He noted since purchasing the refinery in 2006, Harvest has spent $50 to $60 million a year on capital projects.
"We would foresee spending similar amounts of money in the years ahead. So we still have a healthy cash flow … and from that we are able to fund ongoing improvements at the refinery and our plan is to continue to do that."