* To announce fate of upgrading plant by month end
* Shaky economics point to deferral or cancellation
* Start-up of Imperial Kearl project also within days
By Jeffrey Jones
CALGARY, Alberta, March 25 Suncor Energy Inc
is expected to shelve plans for a multibillion-dollar
oil sands processing plant in northern Alberta when it announces
the fate of the facility in the coming days, blaming a forecast
for weakening returns.
The decision by Canada's largest oil company on its
long-delayed and partially built Voyageur upgrading plant in
Alberta is one of a pair of major developments in the oil sands
due this week, the other being the targeted start-up of Imperial
Oil Ltd's Kearl mining project after about four years
The two events show the changing dynamics of Canada's oil
sands industry as it deals with more difficult economics due to
surging production of cheaper light oil from the North Dakota
Bakken and a move away from "upgrading" the oil sands bitumen
into lighter, refinery-ready oil in Alberta.
Suncor said in February that the "economic outlook for the
Voyageur upgrader project is challenged" and it cut any
expenditures on it to a minimum pending a decision on going
Based on the current weak financial outlook facing new
facilities built to pump out synthetic light crude, Suncor will
postpone the 200,000 barrel a day Voyageur project indefinitely,
analysts said on Monday.
"Suncor's official comments on conference calls have been
something to the effect of, 'The primary motivator behind the
decision will be economics,' and the economics look challenged,"
FirstEnergy Capital Corp analyst Michael Dunn said. "And
investors don't want them to proceed with it."
Suncor Chief Executive Steve Williams has already warned the
proposal, once the centerpiece of a C$20.6 billion ($20.2
billion) expansion of the company's oil sands operations, is
threatened by the U.S. light crude boom. The company began
building the project, located near Fort McMurray, Alberta, but
stopped construction during the financial crisis of 2008-09.
Upgraders are expensive tangles of pipes and vessels that
transform bitumen from the oil sands into light crude used in
traditionally configured refineries. In recent years, numerous
refiners in the U.S. Midwest have added equipment to their
plants that do a similar job.
Another big stumbling block is the tight availability of
labor in Alberta as other oil sands projects move forward, which
points to rising costs, Dunn said.
Suncor has already taken a C$1.5 billion asset impairment
charge on the assets.
Morningstar analyst David McColl wrote in a report that he
has removed Voyageur from his financial forecasts, partly citing
TD Securities analyst Menno Hulshof has also said the
project is "now most likely to be deferred or even canceled." He
pointed out that the bulk of the capital would be redirected to
Suncor's steam-driven oil sands projection operations.
Suncor spokeswoman Sneh Seetal said the company still plans
to announce the fate of the Voyageur project by the end of the
Suncor shares have been under pressure, closing on Monday
down 24 Canadian cents at C$30.73 on the Toronto Stock Exchange.
That represents a drop of 6 percent since the start of 2013.
Voyageur and the proposed oil sands mining projects Joslyn
and Fort Hills are part of a joint venture that Suncor signed
with France's Total SA.
Suncor, Total and a third partner, Teck Resources Ltd
, have said they will make a decision on Fort Hills,
another project that has been years in the planning, by the end
of June, though the operator is advertising for several job
positions in connection with the plant.
The current target for start up is 2017.
In absence of a new Alberta upgrader, Suncor could ship
bitumen from Fort Hills and Joslyn to its refinery in Montreal,
where a previously halted plan to build a coking unit to process
the crude could be revived, McColl said.
Meanwhile, Imperial is sticking to its target for a
month-end start-up for its C$12.9 billion Kearl oil sands
project, which is being developed without an upgrader, spokesman
Pius Rolheiser said.
The first phase of the mining project will eventually
produce 110,000 barrels a day, through production will rise
gradually and it will take as many as 90 days for the crude to
The startup for Kearl comes just as the price of bitumen has
been rising sharply with demand rising for asphalt production in
Western Canada Select, a widely quoted heavy crude grade,
last sold for $16.30 a barrel under U.S. benchmark West Texas
Intermediate, compared with more than $40 a barrel under WTI in
January, according to Shorcan Energy Brokers. The spread has
tightened as inventories in Western Canada have dwindled.