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Higher gas prices to boost Syncrude operating costs

Syncrude‘s oil sands upgrader facility located north of Fort McMurray, Alta.

Kevin Van Paassen/The Globe and Mail

Canadian Oil Sands Ltd. expects operating expenses at Syncrude Canada Ltd. to climb in 2014, thanks to rising natural gas prices.

Canadian Oil Sands predicts Syncrude's operating costs will climb to $1.69-billion or about $46.08 per barrel in 2014, up from its January estimate of $1.6-billion or $41.48 per barrel. Natural gas is needed to power facilities in the oil sands, and the rising cost of that commodity is driving up expenses for some energy producers. Canadian Oil Sands is Syncrude's largest shareholder and made the prediction in its first-quarter results Wednesday.

The Calgary-based company's prediction for sales also climbed, with Canadian Oil Sands expecting Syncrude's revenue will hit $3.52-billion in 2014, up from its previous guidance of $3.38-billion. This climbed because the company expects to sell its oil for about $96 per barrel. Cash flow, it expects, will hit $1.19-billion, up from $1.15-billion in January.

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The Calgary-based company made $172-million or 35 cents per share in the first quarter, down from $177-million or 37 cents per share in the same quarter last year, according to results released Tuesday. Cash flow, however, climbed to $357-million or 74 cents per share, compared to $275-million or 57 cents per share The company expects Syncrude to produce between 95 and 105 million barrels of synthetic crude in 2014. This reaffirms the prediction Canadian Oil Sands released last week after one of Syncrude's cokers went on the fritz. At the time, the company said a further revision may be in the works.

Higher production and crude prices contributed to the stronger cash flow in the first quarter, Ryan Kubik, Canadian Oil Sands' chief executive, said in the statement.

Syncrude's recent production has been unpredictable. Last week it suffered a breakdown at coker 8-1. The repairs will overlap with planned maintenance on its other coker, 8-2. Coker 8-1 went under maintenance last year. Canadian Oil Sands was forced to cut its guidance three times last year as Syncrude's production fell because of troubles with its major facilities.

Cokers are part of the upgrading process, turning bitumen extracted from the oil sands into a lighter product that can then be refined into gasoline and other petroleum products.

Canadian Oil Sands controls 36.74 per cent of Syncrude. It is its only project. Imperial Oil Ltd. provides the necessary operational and technical expertise to run Syncrude.

Imperial Oil holds 25 per cent of the project; Suncor owns 12 per cent; Sinopec, a Chinese state-owned enterprise, holds 9.03 per cent; CNOOC Ltd., another Chinese government-owned oil outfit, holds 7.23 per cent; Mocal Energy Ltd., a Japanese concern, owns 5 per cent; and Murphy Oil Corp. holds the remaining 5 per cent.

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About the Author

Carrie Tait joined the Globe in January, 2011, mainly reporting on energy from the Calgary bureau. Previously, she spent six years working for the National Post in both Calgary and Toronto. She has a master’s degree in journalism from the University of Western Ontario and a bachelor’s degree in political studies from the University of Saskatchewan. More

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