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Syncrude faces reality

January 07, 2016

Suncor’s hostile takeover attempt of Canadian Oil Sands (COS) will soon be decided by a shareholder’s vote. Suncor requires about 2/3rds of the shares tendered to take over COS, the largest shareholder of the giant Syncrude operation in Ft. McMurray. Through 5 decades Syncrude has morphed from a government research venture, to a public-private experiment to now likely part of a big corporation.

Syncrude was formed as a research consortium in 1964. Early investors included Imperial Oil and three companies that no longer exist. To fund the main plant construction the Governments of Alberta, Canada and Ontario (!) invested capital. The governments eventually sold their investment in the Syncrude project.

Construction at the Syncrude site began in 1973, and it officially opened in 1978. The site featured a giant mining operation using monster size equipment, a large upgrader as well as a refinery. Starting in 1996, Syncrude has been expanding its operations.The original mine was expanded and the plant was “debottlenecked”, increasing production from 73.5 million barrels per year in 1996 to 81.4 million in 1999. In 2001, a new mine, Aurora, was opened 35 km north of the original site, and further debottlenecking was undertaken. Production started in Aurora in July 2001. Syncrude’s production increased to 90 million barrels per year by the end of 2001. A third stage of expansion was undertaken between 2001 and 2006, in which a second train at the Aurora line came online and the Mildred Lake upgrader was expanded. The expansion added 100,000 barrels per day to Syncrude’s production 36.5 million barrels a year.

Syncrude Canada Ltd. operates and administers the Syncrude Project on behalf of its owners. COS is the largest owner with a 36.7% stake while Suncor owns 12%. A Management Services Agreement with Imperial Oil Resources (25% Syncrude owner) enables Syncrude to access the expertise and global best practices of Imperial and its majority owner, ExxonMobil, in such areas as: maintenance, energy management, procurement and safety, health and environmental performance. Imperial Oil has faced many production problems with the Syncrude plant in recent years. Unfortunately, Syncrude is the highest cost producer of synthetic crude in North America, needing a price of approximately $50/bbl to break-even. It would not be easy to shut-down an operation of such a scale and level of complexity. Syncrude’s average daily output has declined every year since 2010. Production is averaging 248,000 barrels a day this year, down by more than 15 per cent from 305,000 in 2007.

Syncrude has an immense impact on the Alberta and Canadian economy:




The harsh economic reality of a collapsing oil price will mean a high cost producer like Syncrude will likely be taken over by Suncor. To survive in the long-run deep pockets are required. At sub-$50 per barrel oil the Syncrude operation remains vulnerable.

In 1978 there were two oil sands mining operations—the small pioneer, Great Canadian Oil Sands (GCOS) and the much bigger brand new Syncrude operation located nearby. GCOS became Suncor which gobbled up Petro-Canada and other small operations all the while expanding beyond Ft.McMurray. Syncrude, perhaps by the nature of its consortium nature, expanded in Ft.McMurray but never beyond. Now 40 years later, the smaller player is the much larger and stronger player.

Syncrude proudly celebrated it’s 50th anniversary just two years ago. The Syncrude operation has much to be proud of. Let us hope that Suncor can keep it running for many years to come.