October 29, 2015 / 4:48 PM / 3 years ago

Canada's Syncrude project faces operational challenges - Suncor

CALGARY, Alberta (Reuters) - The Syncrude oil sands project is experiencing “operational challenges” that could be resolved if Suncor is successful in its hostile takeover bid for Canadian Oil Sands COS.TO, Suncor Energy (SU.TO) Chief Executive Steve Williams said on Thursday.

A tailings pond near the Syncrude tar sands operations near Fort McMurray, Alberta, September 17, 2014. REUTERS/Todd Korol

Suncor, which has a 12 percent stake in the joint venture Syncrude mining and upgrading project, made a C$4.3 billion ($3.27 billion) offer this month for Canadian Oil Sands COS.TO, the biggest stakeholder.

During a third-quarter earnings call, Williams said Syncrude has been running at around 60 percent of capacity throughout October because of problems restarting after the facility cut production following a fire in late August.

The project in northern Alberta has the capacity to produce around 350,000 barrels per day of light synthetic crude oil.

There were issues with the sulfur recovery unit and some pumps in that system, and repairs were completed over the last week, Williams said, adding that the plant is now starting to move back up to more normal rates.

Syncrude is operated by another joint venture partner, Imperial Oil (IMO.TO). Williams said he expected Imperial to continue to run the project if the Suncor takeover succeeds, but added that there were opportunities to improve performance.

“If we were to move from 12 percent to 49 percent (ownership), and we would start to help Imperial with a more significant resource assistance, we’re confident that through that support to the operator, we can see significant improvements,” Williams said.

Canadian Oil Sands has urged its shareholders to reject Suncor’s offer, describing it as “entirely opportunistic” and saying it “substantially undervalued” the company.

Asked if Suncor would walk away from the deal before raising the price, Williams said Suncor thought it had made a “full and fair offer” that was compelling to shareholders.

Williams noted crude prices had fallen since Suncor made its offer, with many commentators forecasting that prices would be lower for longer, and said the operation of the Syncrude asset had continued to deteriorate.

There are seven partners in the Syncrude joint venture - Canadian Oil Sands, Suncor, Imperial, Mocal Energy, Murphy Oil (MUR.N), CNOOC Ltd’s (0883.HK) subsidiary Nexen and Sinopec (0386.HK).

Suncor shares were last up 3.3 percent at C$38.77 on the Toronto Stock Exchange. On Wednesday the company reported a third-quarter loss of C$376 million on unrealized foreign exchange losses.

Editing by Bernadette Baum and Paul Simao

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