Already, through Project Millennium — a 4-year, $3.4-billion expansion of the existing Oil Sands facilities completed last year — Suncor has increased production capacity to about 210,000 barrels of oil per day, more than double its 1999 production.
The newly expanded operations have had a few startup hiccups of late, including a power outage in March that caused first-quarter production projections to be revised downward to 175,000-185,000 barrels per day from 190,000-205,000 barrels.
During the quarter, Suncor was also hit by outages at a few of its customers’ refineries, which reduced sales.
Earnings for the 3-month period are now expected to be $80 million, or $20 million below expectations, reflecting lower production coupled with sharply higher cash costs of $16 per barrel, compared with the projected $11. (This compares with Suncor’s cash-operating costs of $11.90 per barrel and earnings of $388 million during all of 2001, the company’s best year so far.)
In early April, another problem arose: the new Millennium oil sands hydrogen unit — one of two units at the plant — was shut down for 10 days in order to replace a leaking gasket that had led to a small fire. Full operations have since resumed.
As a result of the shutdown, Suncor’s expected production from its Oil Sands operation in April has been lowered to an average of 180,000 barrels per day.
Suncor’s leases in the Athabasca region contain a combined total of more than 12 billion barrels of recoverable bitumen, enough reserves to sustain production for the next 50 years.
At the current mining rates, Suncor’s pits deliver about 400,000 tonnes of oil sands per day to ore-preparation plants, where the Clark Hot Water process is used to extract bitumen from the oil sands.
The steam, water and power for Suncor’s entire Oil Sands operation are produced on site.
In 1999, to support Project Millennium and the need to generate more power, Suncor entered into an agreement with TransAlta to operate existing energy facilities and build and operate a co-generation facility on the Oil Sands site.
This new facility consists of two large gas-turbine generators, along with heat-recovery steam generators and two new steam-turbine generators totalling 360 MW of electricity. The primary fuel for the turbines is clean-burning natural gas, and surplus power can be sold directly to the Alberta power grid.
A sulphur-reduction plant, built in 1996 at a cost $190 million, has helped reduce plant-wide sulphur dioxide emissions by about 75% and allows Suncor to fuel the main boilers with petroleum coke. In 1997, the Alberta Foundation for Environmental Excellence honoured Suncor with an Emerald Award in recognition of the new plant.
The tailings from oil sands processing are a slurry of water, clay, sand, residual bitumen and chemicals that is held in ponds, where the sand drops out to be used in the building of dikes. Meanwhile, the fine clay-water mixture forms a stable suspension. In time, these clay particles settle to form a fluid-like deposit called fine tailings.
Five ponds at Suncor’s operations now contain about 145 million cubic metres of water and fine tailings, covering 870 hectares. Suncor’s first tailings pond is scheduled for reclamation in 2010.
In 1996, Suncor began to use the Consolidated Tailings (CT) technology to eliminate the large fluid volumes created by the tailings ponds. This technology uses gypsum, a byproduct of the flue gas de-sulphurization plant, to speed up the transformation of tailings into solid material capable of supporting vegetation and wildlife. Through the use of CT technology, Suncor hopes to create a solid surface within 10-20 years, compared to hundreds of years otherwise.
Suncor’s policy is to reclaim and restore all of its industrial or affected lands. Since mining began at Suncor’s Fort McMurray oil sands site in 1967, the company has planted 2.4 million trees and reclaimed more than 600 hectares, representing about 9% of the total land disturbed.
During Suncor’s ongoing Oil Sands expansion, the company plans to minimize the impact on local wildlife habitat by phased clearing and land reclamation and by maintaining wildlife corridors along the Athabasca and Steepbank Rivers.
All of Suncor’s synthetic crude oil is a blend of component streams — naphtha, kerosene and gas oil — which allow for the production of either a standard blend or a custom blend that meets any specific needs of a refinery.
Suncor’s oil-sands-derived synthetic crude oil is shipped by pipeline to refineries in Edmonton and Fort Saskatchewan, Alta., and farther east to refineries in Sarnia, Ont., and other centres.
Whereas pipeline limitations once constrained Suncor to selling oil products only to customers in eastern Canada and the U.S., today’s extensive pipeline system permits the company to market crude oil, diesel fuel and byproducts into the midwestern and northwestern U.S. and California through its subsidiary, Suncor Energy Marketing.
Because most of the sulphur has already been removed from the synthetic crude oil, Suncor’s product is considered high-grade oil and is often used to produce clean-burning aviation fuel.
Firebag project
With Project Millennium completed, Suncor’s is shifting its focus to the Firebag in situ oil sands project, being built 40 km northeast of Suncor’s existing Oil Sands plant. The Firebag leases cover more than 1,000 sq. km and contain resources of some 9.6 billion barrels of bitumen.
The project will entail the building of a $450-million commercial-scale in situ extraction operation and the further expansion of the upgrading capacity of the Oil Sands operation to handle the added Firebag feed.
Use of the in situ technology will allow Suncor to exploit oil sands that are too deep to be mined economically by open-pit methods (see separate story, page 1). Using steam-assisted gravity drainage (SAGD) technology, Suncor can recover bitumen with less disruption to the environment at surface.
The development of Firebag will add about 35,000 barrels per day of bitumen to Suncor’s output by 2004, in support of the company’s plan to boost production to 260,000 barrels of oil per day by 2005. Future development will increase Firebag’s daily production to 140,000 barrels of bitumen before the end of the decade.
Suncor is studying ways to reduce potential environmental damage by injecting carbon dioxide and light hydrocarbons into the Firebag deposit to decrease emissions and reduce the amount of natural gas needed to generate steam. Suncor is also examining the potential use of the in situ reservoir as a permanent repository for greenhouse gas emissions.
Voyageur project
Beyond the Firebag project, Suncor has set itself the ambitious goal of boosting Oil Sands production to 400,000-450,000 barrels of oil per day by 2008 and 500,000-550,000 barrels by 2010-12.
The company has dubbed this next expansion phase the “Voyageur project” and expects to apply for regulatory approval before the end of 2002 to increase its upgrading capacity, accelerate oil sands mining and expand in situ development.
However, Suncor cautions that the Voyageur development will require favourable fiscal and markets conditions as well as the approval of Suncor’s board of directors.
The company will release preliminary cost estimates for the Voyageur plan by late 2002, once it has received results from engineering studies, market analysis, stakeholder consultations, and an environmental and socio-economic impact assessment.
Suncor’s prefers that Voyageur be largely financed from internal cash flow, which is dependent on commodity prices and other factors.
Capital spending requirements for the Oil Sands expansion project are projected to be $1 billion per year over the next 10 years.
This year, Suncor has budgeted $900 million for capital expenditures, with about two-thirds of the funds directed toward its Oil Sands operations. By comparison, $3 billion was invested in Suncor’s oil sands operations in the past two years alone. The reduction in capital spending should enable Suncor to use cash flow to reduce debt.
In other news, Suncor is selling its retail natural-gas business in Ontario to Energy Savings Income Fund for $66 million. The latter will acquire 120,000 retail gas customers from Suncor unit Sunoco, as well as utility, transport and gas contracts. The deal was expected to close by the end of April.
Last year, Suncor sold off its Stuart Oil Shale project in Australia in order to focus on its Canadian assets.
In January, the major raised even more cash by placing US$500 million worth of 7.15% unsecured notes due Feb. 1, 2032, with U.S. investors. Proceeds were to be used to repay commercial paper and bank borrowings.
Suncor has also announced it would implement a 2-for-1 split of its common shares. Shares were split twice before, in May 1997 and May 2000. The record date for the latest split is May 15, 2002, subject to the approval of shareholders.
Be the first to comment on "Suncor expands with Project Millennium"