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Clearing the decks for a possible sale
Gary Park For Petroleum News
The “strategic repositioning” process continues at Synenco Energy as the startup oil sands company grooms itself for a possible outright sale a month after halting work on the upgrader portion of a possible C$10.7 billion integrated project.
It has eliminated 46 positions, reducing the workforce to 118 people as it explores a full range of options to reduce development costs, including sale of the company less than two years after it went public, taking on new partners or alternative downstream commercial ventures.
Synenco, with a 60 percent interest, is managing partner of the Northern Lights project and operator of a proposed mine, with the remaining 40 percent held by a Canadian subsidiary of China’s Sinopec.
But Synenco’s grand plans got derailed when the estimated cost of a 100,000 barrels-per-day upgrader near Edmonton soared more than three-fold to C$6.3 billion.
In pulling the plug on upgrader design and engineering activities, Synenco said the entire venture’s internal rates of return were estimated at 8.5 percent to 9 percent, below what the company believes it would cost to take on debt or raise equity to finance construction.
Synenco President and Chief Operating Officer Todd Newton said May 30 that work is proceeding with a Northern Lights mine application, mine planning and pilot testing of extraction technologies as well as plans to import modules for the mining operation from Asia in a further bid to reign in costs.
However, Synenco has scrapped its timetable to produce 114,500 bpd in two stages, starting in 2010 and expanding in 2012, without setting a new schedule.
Company now committed to synthetic crude Newton said the company is now committed to producing synthetic crude rather than bitumen to sidestep the need for upgrading.
Synenco’s altered course is seen as reflecting the challenges faced by smaller oil sands players who don’t already have production to generate cash flow, exposing themselves to cost pressures.
North American Oil Sands was in a similar squeeze until accepting a takeover offer by Norway’s Statoil in April.
Synenco’s review of options was initiated barely a month after Steve Gilliland, executive vice president of operations, told an industry conference that his company was even contemplating doubling the size of its upgrader to 200,000 bpd.
He said at the time that the economics of a 200,000 bpd facility “are a lot better” than for a plant half that size.
But he conceded that the industry’s greatest difficulty is its “virtual, complete incapability to predict capital costs.”
Sinopec, CNOOC, keeping low profiles Sinopec has kept a low profile over the past two years since acquiring its stake in Synenco, and during the most recent turmoil at Synenco, given no indication whether it has any interest in taking over Northern Lights.
Just as quiet is CNOOC, China’s other stakeholder in the oil sands upstream, which took a 16.59 percent interest in MEG Energy in 2005.
MEG is still working on plans for a 3,000 bpd pilot project at Christina Lake in northeastern Alberta, followed by a 22,000 bpd commercial operation.
It shows no signs of retreating having struck a deal with Paramount Resources on May 31 to buy oil sands leases and producing natural gas rights in the region for C$301.7 million in cash and common shares.
Paramount said that by retaining a C$150 million equity investment in MEG it has a continued interest in oil sands development without the need for capital investment.
MEG already holds a 100 percent working interest in 555 square miles of oil sands leases estimated to hold 6 billion barrels of original oil in place, of which about half is thought to be recoverable using existing technologies.
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