Canadian Oil Sands Ltd. , the largest shareholder in the massive Syncrude Canada Ltd. oil sands operation, says it faces a growing gap between the price it receives for its oil relative to the North American benchmark, amid changing dynamics in the refining market.
The company forecast that its product, dubbed Syncrude Crude Oil or SCO, will sell for about $10 a barrel less than West Texas Intermediate crude in 2012. The international price of oil, meanwhile, is ahead of WTI by about $15 a barrel.
The changing face of the North American oil market is behind the discounted selling price, as Syncrude is forced to ship its crude to far-away refineries, driving up transportation costs.
"Increasing North American production of both SCO and light crude oil from tight oil formations and refinery modifications enabling processing of heavier crude oils have resulted in sales to more distant refineries, thereby decreasing the net realized price by higher transportation costs," Canadian Oil Sands said in its first quarter report Monday. "More recently, this situation has been exacerbated by pipeline apportionment which has restricted the ability of SCO and other crude oils to reach their preferred markets, reducing the price received."
The company said SCO sold at a discount of $5.89 per barrel in the first quarter of 2012, compared to a premium of 35 cents per barrel in the same quarter in 2011. Canadian Oil Sands' discount estimate for 2012 is based on WTI trading at $100 (U.S.) per barrel. As a result, Canadian Oil Sands expects to sell SCO for an average of $90 per barrel in 2012.
Canadian Oil Sands, which controls 36.74 per cent of Syncrude, said it earned $321-million or 66 cents per share in the quarter, down from $324-million or 67 cents per share in the same period last year. Profit slid in part because of unplanned maintenance at a coker unit, which is key to upgrading bitumen.
Cash flow from operations totalled $454-million or 94 cents per share in the quarter, down from $478-million or 99 cents per share. Canadian Oil Sands said lower sales volumes and higher royalty payments dragged on cash flow, while a higher sales price and lower expenses, thanks in part to depressed natural gas prices, help buoy the company.
Canadian Oil Sands jacked up its dividend by a nickel Monday, pledging to pay shareholders 35 cents per quarter. "The increase ... reflects confidence in our business fundamentals and the commitment to delivering excess cash to our investors," chief executive Marcel Coutu said in a statement.