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Ending oil sands ‘overlap’; Suncor to take over Syncrude operations
Gary Park for Petroleum News
The latest page has been turned in the decades-long evolution of Alberta’s oil sands, which started with various methods to extract raw bitumen from vast deposits and upgrade the substance into synthetic crude for refining into a basket of energy fuels.
In 1963 Sun Oil invested C$250 million to establish the Great Canadian Oil Sands, GCOS, project in what some critics within the oil industry said was a “daring venture into an unknown field” and the “biggest gamble in history.”
Undaunted, J. Howard Pew, then Sun Oil’s chairman and president, said he was “convinced this venture will succeed (and become the) means of opening up reserves to meet the needs of the North American continent for generations to come.”
His confidence has largely been validated despite a series of setbacks from plant breakdowns, to fires, freeze-ups, power shortages, management and ownership turmoil and labor showdowns.
GCOS was eventually renamed Syncrude Canada, a consortium that is owned 59% by Suncor Energy, 25% by Imperial Oil (which is 69.6% owned by ExxonMobil) and the balance by two Chinese government owned entities - Sinopec Oil Sands Partnership with a 9% stake and China National Offshore Oil Corp. with 7%.
Over the last 40 years, it has grown output from 45,000 barrels per day to 350,000 bpd from shallow deposits which are upgraded from bitumen into high quality light (32 degrees API) sweet synthetic crude for refining into various fuels.
Suncor to take over operations Now Syncrude is poised to turn over the controls of its day-to-day mining and upgrading operations from Imperial to Suncor by the end of 2021 in a bid to cut C$300 million from annual operating costs, reducing them to US$23 (C$30) a barrel.
It’s a change Suncor Chief Executive Officer Mark Little said “presents a strategic opportunity for Syncrude and the joint-venture partners.”
He said Syncrude currently has “some degree of duplicate management structure” compared with Suncor and “is getting so convoluted.”
The joint owners agree Suncor should remove some of that excess but would not disclose how many of the Syncrude consortium’s 4,600 jobs would be affected.
In October, Suncor set in motion a cost-cutting initiative within its own ranks to reduce its workforce by 15%, or an estimated 2,000 jobs.
Switching the operator role at Syncrude is a sign of the evolution of the oil sands mining sector from a high-cost venture with risky, unproven technology to one that is more proven and predictable, said Joseph Doucet, dean of the Alberta School of Business at the University of Alberta.
National Bank analyst Travis Wood said in a report that Suncor believes it can drive average utilization rates to 90%, compared with a five-year average of 80%, with only six quarters of the last 20 exceeding the 90% target.
He said the cost target would represent a major change compared with Syncrude’s five-year average of C$39 per barrel.
- GARY PARK
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