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Suncor’s Voyageur upgrader stands partly built, north of Fort McMurray, Alta.Brett Gundlock/The Globe and Mail

The fate of Suncor Energy Inc.'s Voyageur upgrader will be made public within days, but with rapidly expanding North American oil supplies challenging the viability of major oil sands projects, the prospects for the $11.6-billion upgrader are looking increasingly grim.

The foreboding mood around the massive Voyageur project was compounded Thursday when Suncor's chief financial officer Bart Demosky mused about other potential ventures the oil sands giant could focus on if the planned upgrader – which was expect to produce 218,000 barrels of synthetic crude oil per day when complete – was cancelled.

"What that does allow us to do is redeploy the capital that would have been targeted to those projects into much higher return projects, something we're looking very closely at," he said, speaking to investors at FirstEnergy's East Coast Energy Conference in New York.

Mr. Demosky said while he can't reveal the results of a review of the project, "we will have a very clear message out for investors later this month." He emphasized the "economically challenged" Voyageur project is not "some sort of strategic investment where returns don't matter. It's a margin play when you build an upgrader. And margins are compressed."

An upgrader is a kind of pre-refinery that transforms heavy crude into a lighter oil that can be further refined into fuels such as gasoline and diesel. In the past, Suncor officials have said that, essentially, the question is whether the cost of the plant is justified by the difference between the price of the crude going in and the upgraded oil coming out. In the past year, the ability of U.S. producers to deliver more light sweet crude has exceeded expectations, causing firms to reflect on the value of upgrading lower grades of crude.

Already last month, Suncor took a $1.5-billion writedown on the Voyageur project.

Mr. Demosky didn't lay out what Suncor's alternative, higher return activities might be. But it appears it still makes economic sense for the company to step up crude production. He noted costs for the Firebag Stage 4 expansion – already producing oil – has come in 15-per-cent below costs. With that expansion, Suncor will be producing 210,000 to 215,000 barrels per day through the SAGD (Steam Assisted Gravity Drainage) process within the next 12 months.

Suncor spokeswoman Sneh Seetal said the company has a long list of future projects on its books, and pointed to potential expansions at Firebag and MacKay River, as well as the company's interests in Norway. She said more details will come out in the weeks ahead.

"But it's a little bit premature at this point because that's assuming that we're going one direction," Ms. Seetal said.

Political leaders such as federal NDP Leader Tom Mulcair have increasingly spoken about Canada's over-reliance on exporting raw crude for its economic growth, arguing it would be better to have Canadians working in upgrading and refining plants to create a value-added product.

However, a number of oil executives have repeated the mantra that in this case political desires don't meet up with realities – and in many situations, the economics aren't in place for major new upgrading and refining facilities on Canadian soil.

Suncor had already spent about $3.5-billion on Voyageur, and started construction, when the project was sidelined in the downturn of 2009. It was restarted again at the end of 2010, when Suncor and Total E&P Canada Ltd. announced a partnership agreement on Voyageur, and the associated Fort Hills and Joslyn bitumen mines.

On Thursday, Mr. Demosky also said the firm will be providing more clarity regarding the future of the Fort Hills mine later in the year. He said that project, too, must meet targets for returns. "That project again is going to be evaluated on its own merits."

In an interview, FirstEnergy Capital analyst Michael Dunn said Canada's oil sands industry has done a better job of controlling costs on SAGD projects than is typical with some big upgrading schemes, which require massive infusions of labour and capital. "I suspect once they have decisions on Voyageur and Fort Hills made, then maybe shortly after that they'll disclose their official plans for other projects."

Editor's Note: An earlier online version of this story incorrectly stated that after its expansion Firebag 4 will be producing 210,000 to 215,000 barrels per day through the SAGD (Steam Assisted Gravity Drainage) process. This output represents Suncor's entire production by means of SAGD.

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