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Syncrude's oil sands up-grader facility located north of Fort McMurray, Alberta is seen in an aerial photograph Aug. 31/2010 (Kevin Van Paassen/The Globe and Mail)
Syncrude's oil sands up-grader facility located north of Fort McMurray, Alberta is seen in an aerial photograph Aug. 31/2010 (Kevin Van Paassen/The Globe and Mail)

Syncrude coker breakdown puts heat on Canadian Oil Sands shares Add to ...

Syncrude Canada Ltd. is suffering from another breakdown, a repeated problem at the aging oil sands project, and its largest shareholder is taking a bruising for its troubles.

Canadian Oil Sands Ltd. late Thursday said one of Syncrude’s cokers, 8-1, is undergoing “unplanned maintenance.” Unplanned maintenance is industry code for machinery going on the fritz and needing repairs. This coker underwent maintenance last year. Canadian Oil Sands is Syncrude’s largest shareholder.

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The most recent problem is compounded because the project’s other coker, 8-2, is scheduled to undergo planned maintenance, code for general upkeep, in the second quarter. This will mean both cokers will be under repair at the same time. Production slows when major pieces of machinery are being fixed.

Canadian Oil Sands revised its projection expectations because of the breakdown. The company said it now expects Syncrude to produce between 95 million and 105 million barrels of synthetic crude in 2014. This is down from December’s prediction of between 95 million and 110 million barrels. It hinted further changes may be on the way.

The stock closed at $23.25 per share Friday, down 88 cents or 3.65 per cent.

Cokers are part of the upgrading process, turning bitumen extracted from the oil sands into a lighter product that can then be refined into gasoline and other petroleum products. This time, a valve leaked and could not be replaced without interrupting the bitumen feed into the coker, said Siren Fisekci, a spokeswoman for Canadian Oil Sands. The repair on the valve is complete. The unit remains down, however, because Syncrude has to clean up the coke that was gunked up as the valve was being repaired. Similar events have taken about 30 days to complete maintenance work, she said.

Troubles with fix-its have become a problem at Syncrude. A boiler related to coker 8-1 broke down in May, 2013. This prompted the company to start its planned maintenance on the related coker June 1 of that year, earlier than planned. It was scheduled to take 50 days, but stretched beyond that. Canadian Oil Sands was forced to cut its guidance three times last year.

Imperial Oil Ltd., which is controlled by Exxon Mobil Corp., runs Syncrude, one of the first oil sands project in the country. Rich Kruger, Imperial’s chief executive, says Syncrude is doing fine.

“I look at Syncrude’s performance and I look at them, and they look about on par with the rest of the big mines in industry, if you look at reliability and things,” he told reporters after the company’s annual meeting Thursday, but before the news of the broken coker was released. “What our objective is, is to be better than that.”

Mr. Kruger continued: “We’ve worked with the other owners and looked at what we can do on the equipment side, on the personnel side, on the training side, and all of our objectives are to improve Syncrude’s performance. But struggling – I don’t know if I would say struggling. It looks about like everybody else in that business.”

The project has the capacity to spit out 350,000 barrels per day, according to Syncrude’s website. The last time it reached capacity was August, 2012, when it hit 359,500 barrels of oil per day. Prior to that, it had not reached its potential since November, 2010, when it processed an average of 356,800 barrels of oil per day, according to Canadian Oil Sands’ website.

Syncrude produced an average at 267,000 barrels of oil per day in 2013. It processed an average of 286,500 barrels of oil per day in 2012 and an average 288,300 barrels of oil in 2011. Its best year is 2007, when it produced an average of 305,000 barrels of oil per day. Data beyond 2004 is not available on Canadian Oil Sands’ website.

By way of comparison, Suncor Energy Inc.’s upgrading facilities have the capacity to produce 350,000 barrels of oil per day, the same as Syncrude. Suncor’s upgrading operations churned out an average of 282,600 barrels of oil (and diesel) per day in 2013, according to its fourth-quarter results in 2013. In the year prior, it processed 276,700 barrels of product per day.

Canadian Oil Sands’ press release on Thursday indicated further changes, or at least more information, is on the way with respect to its 2014 guidance. “COS will provide revised guidance for 2014 concurrent with the release of its first-quarter results on April 30, 2014,” the company said in the announcement detailing its most recent coker problems.

Phil Skolnick, an analyst for Canaccord Genuity, should use the opportunity to buy Canadian Oil Sands stock as its price falls because of the coker outages.

“This is a reminder that unplanned outages do happen in the upgrading business; but they can also create buying opportunities,” he said in a research note published Friday.

Upgraders and refineries have a lifespan of about 50 years and are refurbished throughout their lifetime during stretches of maintenance, Canadian Oil Sands’ Ms. Fisekci said. Syncrude’s facility has been running for about 35 years.

Canadian Oil Sands controls 36.74 per cent of Syncrude. It is its only project.

Imperial Oil holds 25 per cent of the Syncrude; Suncor owns 12 per cent; Sinopec, a Chinese state-owned enterprise, holds 9.03 per cent; CNOOC Ltd., another Chinese government owned oil outfit, holds 7.23 per cent; Mocal Energy Ltd., a Japanese concern, owns 5 per cent; and Murphy Oil Corp. holds the remaining 5 per cent. These companies will not be as hard hit by Syncrude’s problems because they own other projects around the world.

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