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Suncor wants a bigger say in Syncrude plant

The Syncrude Canada Ltd. oil sands upgrading plant stands in this aerial photograph taken north of Fort McMurray, Alberta, Canada, on Thursday, June 4, 2015.

Ben Nelms/Bloomberg

Suncor Energy Inc. is poised to put its stamp on the aging Syncrude oil sands plant, hoping to wring better performance from the struggling project after buying a majority stake in the joint venture.

Suncor and Imperial Oil Ltd. are discussing ways to better integrate the mining and upgrading operation with Suncor's base plant, taking advantage of a consolidated ownership structure in a bid to trim costs and improve reliability at the 1970s-era mine.

Imperial owns 25 per cent of Syncrude and has been the de facto operator of the project under a 10-year management services agreement that is set to lapse in November. Neither it nor Suncor has said whether that contract will be renewed.

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At stake is the future of Canada's second-oldest oil sands mining, bitumen extraction and synthetic crude upgrading operation, a major employer in northeastern Alberta that had shelved expansion plans even before oil prices crashed so that it could focus on fixing its operational problems.

Indeed, Syncrude has been racked by high costs and has repeatedly missed production targets, drawing sharp criticism from Suncor chief executive officer Steve Williams during a protracted takeover battle for Canadian Oil Sands Ltd. last year. Suncor now owns nearly 54 per cent of the project, up from 12 per cent a year ago.

The oil sands giant is seeking greater sway in how Syncrude is run during a time that low oil prices have made new bitumen projects unprofitable, ratcheting up pressure on producers to squeeze costs at existing assets.

"Suncor would have a fair case to make that 10 years is a long enough time to execute changes, and evidence suggests that for most of that time things were getting worse," FirstEnergy Capital Corp. analyst Michael Dunn said.

Last week, Imperial Oil CEO Rich Kruger said the two companies were studying ways to co-operate under a simplified ownership structure. That includes potentially sharing surplus infrastructure and possibly moving fluids between the neighbouring plants, he said.

However, it's unclear how such initiatives might affect costs. "We believe that it's significant and material and worth pursuing, but we don't have an estimate yet," Mr. Kruger said.

Even as the companies seek closer ties, the fate of the decade-old management agreement appears to be in limbo. An Imperial Oil spokeswoman said the company doesn't comment on commercial arrangements.

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Meanwhile, Mr. Kruger played down Imperial's operational role at the mine, telling reporters that "very little has changed" for the company now that Suncor owns a larger share.

Imperial, majority-owned by Exxon Mobil Corp., has long insisted that it does not run the venture, despite overseeing numerous aspects of the project, including maintenance and reliability, for years. "I don't see it as passing the torch," Mr. Kruger told reporters.

Suncor has said little about future plans for Syncrude, only that it aims to reduce cash costs at the operation to the range of $30 a barrel. The company is expected to outline specifics by the end of the year.

A Suncor spokeswoman would not say whether that would entail renewing the management agreement with Imperial.

Suncor has previously pegged Syncrude's operating costs at $38 to $45 a barrel, among the industry's highest. On Friday, West Texas intermediate oil settled at $44.48 (U.S.) a barrel.

Imperial last week touted the best month of production ever in August as a sign of improvement. Per-unit costs have dropped by more than $10 from a year ago, saving $1.2-billion (Canadian), it told investors.

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The previous monthly output record dates to 2008, when production hit 375,000 barrels a day, according to FirstEnergy's Mr. Dunn.

However, he cautioned that there are only a handful of months since 2006 when output has exceeded the mine's 350,000-barrel capacity, typically following major shutdowns for maintenance.

The recent spike followed a prolonged shutdown that was extended by weeks because of the wildfires that swept through the region during the spring.

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