The fix-it job on a major piece of machinery at Syncrude Canada Ltd. has wrapped up, but with it comes worries for the largest stakeholder in the oil sands consortium.
Canadian Oil Sands Ltd., which controls 36.74 per cent of the project, but does not serve as its operator, may be pinched after summer maintenance at one of its cokers took longer than expected. Cokers are key to upgrading bitumen and now Canadian Oil Sands is in danger of missing its production target.
The company has already lowered its production expectations twice this year. Canadian Oil Sands reduced its estimate for its share of Syncrude’s bitumen production to 100 to 104 million barrels for 2013, with a “single-point estimate” of 102 million barrels when it reported its second-quarter earnings in July. But now at least one analyst thinks even the low end of the company’s forecast is out of reach after repairs took 21 days longer than expected.
Phil Skolnick, an analyst at Cannacord Genuity, believes Canadian Oil Sands’ production in 2013 will come in at 98 million barrels. His estimate is based on Syncrude’s historical production: The project would have to operate at near-record rates in order to hit the company’s most recent target, he calculates.
Syncrude would have to average 325,000 barrels of bitumen per day in order for Canadian Oil Sands’ take to reach the low end of its guidance, Mr. Skolnick said in a note to clients.
“We feel this is unachievable,” he said. There have only been seven times since the beginning of 2010 that the project has met rates at or above this level, and never for more than two consecutive months, he said.
Syncrude was slated to perform maintenance on the coker in the second half of 2013, but instead started earlier because of unplanned maintenance outage at a related boiler unit. The so-called turnaround on the coker started June 10 and was expected to last 50 days, analysts at RBC Dominion Securities said.
They called the delay “slightly negative.” Canadian Oil Sands announced the return of its coker Tuesday evening.
The company did not address whether its production would be affected by the maintenance when it announced the coker’s return. Canadian Oil Sands did not return a call seeking comment. An Imperial Oil spokeswoman said her company does not provide production guidance, and Suncor Energy Inc. did not immediately return a call seeking comment. Imperial and Suncor are Syncrude’s next two largest investors.
Those companies, however, do not rely on Syncrude to the same degree as does Canadian Oil Sands. Syncrude, one of the country’s largest oil sands mining projects, is that company’s only asset.
Mr. Skolnick noted the company expects changes at one of Syncrude’s mines to improve the project’s operations. However, this is not enough to sway the analyst. “Given the extended turnaround and guidance decrease, we are taking a ‘show me’ stance on the matter.”