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Husky Energy says it's facing cost pressures at Sunrise oilsands plant

CALGARY - Husky Energy Inc. (TSX:HSE) says the price tag for the first phase of its Sunrise oilsands project in northern Alberta is going up, with costs of its central plant coming in higher than expected.

Speaking at Husky's investor day on Wednesday, executives provided no details on how much higher costs could climb, as a final estimate has not been finalized.

Sunrise Phase 1 was most recently projected to cost $2.7 billion. It is still on track to start up in the second half of this year.

"I'm not happy about the cost overrun on the central plant. That has been an area of considerable pressure," said Rob Peabody, Husky's chief operating officer.

"I expect we're going to have final costs in the next few months and we'll update you with that when we get it."

Construction on the central plant is about 80 per cent complete and Husky is working with its contractor to ensure costs remain in line for the final stretch, Peabody added.

The first phase aims to produce 60,000 barrels of oil per day using steam-assisted gravity drainage, or SAGD, technology to extract the bitumen. In SAGD, steam is pumped underground through one well and the liquefied bitumen is drawn up to the surface through a second one right below.

Husky plans to tackle expansions to Sunrise through "bite-sized" phases and will be awarding smaller contracts to firms that provide equipment and services, said John Myer, senior vice-president of oilsands.

"We are making big projects smaller," he said.

Technology will play an important role in lowering the cost of sustaining the Sunrise operations, said Myer.

For instance, vacuum-insulated tubing will ensure heat doesn't escape, improving efficiency. Husky is also custom-designing an electricity-powered rig that "walks," rather than having to be taken apart and put back together every time it's moved to drill a well at a new location.

Husky is also in the early stages of evaluating oilsands potential in the southern part of its Sunrise property.

Sunrise is part of a joint-venture with BP PLC, which also includes interests in U.S. refineries.

Husky, which also has operations in Atlantic Canada and Southeast Asia, expects production for 2014 to range between 330,000 and 355,000 barrels per day, up from 312,000 barrels in 2013.

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