Suncor Energy Inc. is set to take over operation of Syncrude Canada Ltd., one of the country’s largest oil sands projects, in the latest example of consolidation in Alberta’s pandemic-ravaged oil sector.
Syncrude is a joint venture between Suncor Suncor, Imperial Oil Resources Ltd. Imperial, Sinopec Oil Sands Partnership Sinopec and CNOOC Oil Sands Canada CNOOC. Despite the fact it’s owned by oil industry heavyweights, the mine itself is operated by Syncrude’s separate governance structure.
That will all change by the end of 2021, when Suncor takes over operation of the mine, the Calgary-based company announced Monday evening.
Suncor’s president and chief executive Mark Little told The Globe and Mail Monday night that Imperial, Sinopec and CNOOC have all agreed in principle to the move, though it’s yet to receive formal approval.
No cash changes hands under the deal. Instead, Syncrude will become another of Suncor’s multiple operating assets – similar to its Fort Hills mine, its Oil Sands Base Plant and the company’s in situ assets MacKay River and Firebag.
Mr. Little said the move will strengthen the company’s operations in the Athabasca region and give Syncrude a more competitive edge. Indeed, Suncor recently completed two pipelines between Syncrude and Base Plant.
“The owners have worked for a couple of years to try and figure out how we make Syncrude the most globally competitive business that it could possibly be, and the conclusion is to have Suncor operate it,” Mr. Little said.
Suncor reckons the change will result in around $300-million in savings, mainly by consolidating office functions and eliminating duplication in areas like logistics and infrastructure.
“There will be some downsizing that’s associated with it. You can appreciate how difficult this is, because it does result in job losses,” Mr. Little said.
The oil sector is facing continued low prices and compressed demand due to the COVID-19 pandemic, challenges Mr. Little said lend urgency to cost-saving changes.
“We can’t continue to duplicate work. We need to find better ways to move forward,” he said.
“We need to be able to figure out how to generate more cash from these businesses, and working together and taking this step makes a lot of sense.”
The deal signals the first major change in Syncrude’s governance since the operation’s inception 50 years ago, Mr. Little said.
Suncor has steadily picked up chunks of the operation over the past few years, dating back to 2009 when it merged with Petro-Canada – a deal that landed the company a 12 per cent stake in Syncrude.
That small acquisition put the huge oil sands project in Suncor’s long-term sights, Mr. Little said.
In February 2016, Suncor bought Canadian Oil Sands Ltd. and that company’s 37 per cent stake in Syncrude for $6.6-billion. A few months later, in April, it paid $937-million for American Murphy Oil’s five per cent stake in the project.
In February 2018, Suncor bought another five per cent, paying $920-million for the stake owned by Mocal Energy Ltd.
It now owns just shy of 59 per cent of Syncrude, and Mr. Little doesn’t see that changing.
Rather, he said, the other partners support the move to “strengthen the long term interests” of the oil sands project.
“It’s always easy when you own [an asset] outright, but we have no expectation that that would ever happen,” he said.
Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.