Suncor delays new oil sands mine, upgrader "challenged"

Thu Nov 1, 2012 2:54pm EDT
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By Scott Haggett

CALGARY, Alberta (Reuters) - Suncor Energy Inc (SU.TO: Quote) said on Thursday that rising light oil production threatens the profitability of a massive new upgrading facility planned by Canada's dominant oil sands producer as it delayed plans to expand output from the world's third-largest oil reserve.

The company. Canada's No. 1 integrated oil producer and refiner, backed away from what had been a C$20.6 billion ($20.65 billion) plan to boost production from its oil sands operations, delaying a new mining project for at least one year and putting a target date to build North America's largest upgrading facility on hold while it works to squeeze costs from the project.

Steve Williams, who stepped in as chief executive officer in May following the retirement of founding CEO Rick George, had already warned that Suncor would focus on profits rather than growth.

On Thursday he put that plan into action, pushing back the start up of the Fort Hills oil sands mine by one year, to 2017, as Suncor and partners Total SA (TOTF.PA: Quote) and Teck Resources Ltd TCKb.TO look for ways to boost the profitability of the multi-billion dollar project.

"We haven't completed the review, but early indications are that we have been able to add significant value to the mining projects," Williams said on a conference call. "However, the production timeline for Fort Hills is likely to be delayed by about a year."

Williams also moved to hold off on construction of what was to be the centerpiece of the company's growth plans, the 200,000 barrel per day Voyageur upgrader that had originally been scheduled to open in 2016 in order to convert tar-like bitumen from the Fort Hills mine into refinery-ready synthetic crude oil.

"Voyageur economics appear challenged in light of the projected ramp-up in tight oil production in the North American market," he said.

The oil sands of northern Alberta are the world's third-largest oil storehouse, behind only Venezuela and Saudi Arabia. But building and operating new projects in the remote, labor-starved region can be prohibitively expensive.   Continued...