BEIJING (Reuters) - Suncor Energy (SU.TO) is seeking partnership with Chinese companies to help build its oil sands projects as Canada’s top oil producer and refiner struggles with ballooning cost inflation, its top executive said on Wednesday.
“The availability of highly skilled labor is a challenge to oil sands so we are looking at the option to help with that,” said Steven Williams, who became president and chief executive officer of Canada’s largest oil sands producer earlier this year.
“One of the reasons I am here is to see whether China can compete in the EPC (equipment, procurement and construction) world,” he told Reuters in an interview on the sidelines of an energy conference in Beijing, adding he had held preliminary discussions with some Chinese companies in China’s capital city on such cooperation.
Williams also said Suncor was capable of meeting its target of growing its oil sands production capacity by about 10 percent per year through 2020, but it must keep costs under control to make economics of the expansion project work.
“We are absolutely confident that we have the resources available and we have the projects to do it. We will only do it if we manage those challenges properly,” he said. “So I want the projects to be economic, the construction to be reasonable, the projects to deliver value we anticipate.”
Suncor and joint-venture partner Total SA (TOTF.PA) are planning the largest expansion project yet seen in the oil sands: the construction of two new mines and an upgrader capable of producing 200,000 barrels per day of synthetic crude oil.
The two companies have not released cost estimates for the project, and they do not expect to make a final decision on whether to go ahead until next year.
But already concerns that inflation could squeeze profit margins have been said to be one of the factors behind a 25 percent drop in Suncor’s share price over the past year.
Asked what sort of partnership Suncor is seeking with Chinese companies, Williams said: “Think more about how do you build multi-billion dollar projects. How do you construct modules effectively... These are big-capital projects so we are looking for organizations that have the skill and the ability to construct major projects.”
He did not say whether Chinese companies would ask for part of Suncor’s reserve in exchange for EPC service.
Canada, which boasts the world’s third-largest crude oil deposits behind Saudi Arabia and Venezuela, has been a focus of Chinese investment. Since 2005, Chinese oil companies PetroChina (0857.HK) (601857.SS) (PTR.N), Sinopec Group and CNOOC Ltd (0883.HK) (CEO.N) have spent more than C$18 billion on Canadian oil sands properties.
Sinopec Group, parent of Asia’s largest refiner Sinopec Corp (0386.HK), bought a stake in a big Canadian oil sands project called Syncrude for $4.65 billion from ConocoPhillips (COP.N) in 2010. Suncor also has a stake in Syncrude.
Williams also said the recent sharp decline in oil prices would have little impact on Suncor’s operations because its integrated business model is a natural hedge to oil price volatility, and the company has ample financing to bankroll its long-term growth strategy.
Suncor has said it plans to expand its oil sands production capacity by 10 to 12 percent per year through 2020.
“We have a balance sheet which is in excellent health. For our growth program we have the finance available,” Williams said. “Our cash operating cost is around $35 a barrel. So we continue to produce cash.”
“We make investment based on longer-term view. I am reasonably confident oil prices will stay at the place where we can justify the growth,” he said.
“Our 10 year plan may be one of the most ambitious of its kinds in the oil sands industry. But we think our experience and what we learn uniquely position us to deliver on that strategy.”
Suncor does not need to make any acquisitions to help achieve its oil sands production growth target as it has already got enough portfolios to deliver the growth, Williams said.
“We have already had enough resources in our ownership to grow the 10 percent so we don’t need that,” he said. “We are constantly looking at what the market has to offer but we don’t need any more resources.”
Located in northeast Alberta, Suncor has resources of 6.1 billion barrels of reserves and 17.8 billion barrels of contingent resources, it says in its website.
Editing by James Jukwey