David Black Refinery Proposal Gets American Investors

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DAVID BLACK
David Black says he has U.S. investors lined up for his proposed refinery in Kitimat. (The Canadian Press) | CP

VANCOUVER - B.C. newspaper mogul David Black says a group of investors has committed financing for his plan to build a $25-billion oil refinery project on the province's northern coast in a deal that would be one of the largest private developments in B.C. history if it goes through.

Black announced in Vancouver on Wednesday he is on the verge of signing a memorandum of understanding in the coming weeks with a consortium of investors.

The deal is for debt financing, not an equity investment in a project being met with some skepticism from within the oil and gas industry.

"How solid is it? I would say it's 100 per cent because in this case, the financiers are very anxious to help get the refined fuels from Canada," Black said in a speech to the Vancouver Chamber of Commerce.

"I'm sure we'll get through to the finish, I'm sure that money will be there."

The consortium of investors was put together by Richard Cooke, senior managing director of Switzerland-based Oppenheimer Investments Group.

"We have the investors together. We have the commitment," Cooke said. "I can't tell you who they are yet but we'll have documents signed in the next 30 days."

Cooke said the investors will not be partners in the project. The refinery and all its accoutrements will be 100 per cent B.C.-owned, he said.

Kitimat Clean Ltd. would include an oil refinery to be built 25 kilometres north of Kitimat, B.C., to process 550,000 barrels a day from Alberta's oil sands.

The projected capital cost of the refinery is $16 billion. The plan also includes a $6-billion oil pipeline and a $2-billion gas pipeline. It may also incorporate its own ocean-going tankers at a cost of $1 billion, Black said.

The owner of Black Press originally planned the refinery as the terminus of the controversial Enbridge (TSX:ENB) Northern Gateway pipeline, saying he hoped the plan would shift the debate about that project.

Black said he's met with Enbridge officials and is still open to working with them, but the original Northern Gateway plan likely will have to be reworked or scrapped.

There has been and still is little interest in the oil patch for a refinery, Black said, but oil producers will be happy to sell the oil. The reality of B.C.'s environmental concerns may be the deciding factor.

"They (those in the oil patch) keep hoping that B.C.'s going to come around and say, 'Well okay, we'll take the temporary construction jobs on the pipeline and you go ahead and ship that bitumen offshore.' But I've been telling them now for a long time, B.C.'s not going to come around on that."

The project still faces very significant hurdles, said Pete Howard, president of the Canadian Energy Research Institute.

Enbridge has been working on Northern Gateway for a decade, he said, and First Nations concerns won't simply disappear for Kitimat Clean.

There's also the question of supply. The are several significant projects already well underway that will resolve the oversupply and market issues, Howard said, citing Keystone XL and plans by Enbridge and TransCanada to increase capacity going East.

"He's playing a little loose with time," said Howard, whose Calgary-based institute is funded by the federal and provincial governments and the oil and gas industry through the Canadian Association of Petroleum Producers.

Black has no product purchase agreements and may have trouble getting the sales in Asia that he anticipates, he said.

"They really want the crude," Howard said. "They want to use their refineries, they want to use their people to build them and operate them...They're not really looking for the diesel, and the gasoline and the jet fuel."

Black hinted in his speech that such agreements are also imminent.

Pressure is mounting for Canada to diversify its oil markets. Currently, the U.S. is our only customer, and Canadian producers lose an estimated $30 a barrel because of the supply-demand imbalance — $25 billion a year.

Kai Li, of UBC's Sauder School of Business, said the announcement means Black will have the money to pursue what would be the largest private development in B.C. history — once the backers have signed on the dotted line.

"It's really a vote of confidence in the oil and gas industry in Canada," Li said. "It's a very big deal. In recent years there's not many acquisitions of that size."

Kitimat Clean will be the first refinery in the world to employ a new refining technology patented by Expander Energy, of Calgary that should cut greenhouse gas emissions in half, from seven million tonnes of CO2 annually to about 3.5 million tonnes.

That will increase capital costs by $3 billion, but Black said his motivation is not profit.

"I didn’t get into this refinery business to try to make more money for myself in a new industry at the age of 65. I have enough wealth and I enjoy the newspaper business very much," he told the business audience.

A sailor, Black said he doesn't want the B.C. coast threatened by shipping raw bitumen in tankers.

"As my daughter said, 'Dad let’s keep this refinery in our back yard so we can build it right and help look after the planet.'"

Black said the facility could be in service by 2020.

Note to readers: This is a corrected story. An earlier version referred to U.S. investors when in fact, it is unknown where the investors are from

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