CALGARY, Alberta (Reuters) - Canada’s biggest oil sands producers, which have stubbornly resisted halting output even as the price of their crude hits record lows, are planning a higher-than-normal maintenance schedule this year
The move is seen temporarily curbing supply in the second and third quarters, which should lift crude prices in the region and give producers a respite from selling their barrels below cash costs.
Among producers planning major work at their facilities, Suncor is planning the first five-yearly turnaround on its U2 upgrader, Cenovus has three turnarounds planned versus none last year and Canadian Natural has scheduled 30-35 days of maintenance deferred from 2015.
Not all producers disclose the impact on output, making year-on-year comparisons difficult, but Suncor, Cenovus and Canadian Natural’s turnarounds alone will shut off about 22,000 barrels per day of heavy and synthetic crude on an annual basis below what they would otherwise produce.
One industry source, who declined to be named because he was not authorized to speak to the media, said there will be another round of maintenance at the Syncrude oil sands project later this year. Syncrude’s biggest stakeholder Canadian Oil Sands Ltd did not immediately respond to a request for comment.
Sheldon Mckenna, international representative for the International Operating Engineers Union, said 2016 would be an unusually busy maintenance year because some producers had deferred costly turnarounds in 2015 when the oil price slide first prompted them to cut back on spending.
A new left-leaning provincial government in Alberta that raised corporate taxes and pledged to review royalty rates also unsettled producers and caused them to delay work, the trade union representative said.
Essential maintenance work cannot be put off indefinitely but companies can time it to tie in with oil sands expansions, as Canadian Natural plans to do at its Horizon project.
Analysts said companies may be inclined to string out the work.
“When we have turnarounds at upgraders I would be skeptical they would be coming back as quickly as if prices were $60 a barrel,” said Barclays analyst Michael Cohen.
Earlier this week heavy Canadian crude hit a record low under $14 a barrel while synthetic crude, processed at upgraders, traded under $30 a barrel. [CRU/CA]
Junior oil sands producer Connacher Oil and Gas is accelerating planned maintenance at its Great Divide project over the next couple of months and cutting production by around 10,000 bpd.
None of the major oil sands producers said they were considering extending maintenance, but Terry Abel, director of oil sands at the Canadian Association of Petroleum Producers, said all companies were likely looking at opportunities to reduce costs by tweaking turnaround schedules.
“They may be bringing forward some turnarounds because it’s opportune as well,” he said.
Those companies that delayed pricey turnarounds from last year will benefit from labor and supply costs that have come down around 30 percent since last year.
($1 = 1.4137 Canadian dollars)
Editing by Andrew Hay