Even losing $6 per barrel, top Canada oil sands project unlikely to close

CALGARY, Alberta (Reuters) - Canada’s largest synthetic crude project is not likely to shut down operations, its biggest owner said on Wednesday, even as a company presentation showed it is losing about $6 for every barrel it produces.

Syncrude Canada Ltd, a joint venture project in northern Alberta at which mined oil sands bitumen is upgraded into refinery-ready synthetic crude has a break-even production costs of C$57 ($43.46) a barrel, according to a presentation from Siren Fisekci, vice president of investor and corporate relations.

That is around $6 higher than the current outright price for synthetic crude, which yesterday settled at $37.37 a barrel. Synthetic crude has been below $43 a barrel since early August as its discount to benchmark U.S. crude SHRSYNMc2 widened and global oil prices CLc1LCOc1 dived.

The cost to COS to produce Syncrude’s fully upgraded oil is even steeper at C$62 ($47.27) a barrel once interest payments, administration, insurance and other costs are added in, according to the presentation at the EnerCom Oil and Gas conference in Denver, Colorado.

Canada’s oil sands, home to the world’s third-largest oil reserves, also feature some of the highest operating costs and lowest prices in the world. Benchmark Canadian heavy crude has collapsed to 12-year lows at near $20 a barrel, raising questions about whether some operators would simply shut down to wait out the slump rather than carry on pumping at a loss.

Even so, Canadian Oil Sands Ltd COS.TO, the largest-interest owner in the 326,000 barrel per day Syncrude mining and upgrading venture, said shutting in production is not something the company would consider.

“From COS’ perspective we believe the costs to shut in and later restart production are very significant. This is the case for most if not all oil sands projects,” said Scott Arnold, director of investor and corporate relations at COS.

“Shutting in production is not something COS would contemplate, even at current spot prices.”

Break-even costs include operating expenses, regular maintenance, capital expenditures, crown royalties and development expenses and reclamation, according to the COS presentation.

Upgrading bitumen into synthetic crude adds extra expense, but the unusually detailed breakdown of costs underlines the difficulties facing all producers in northern Alberta.

Syncrude is a joint venture of seven partners: COS, Suncor Energy SU.TO, Imperial Oil IMO.TO, Mocal Energy, Murphy Oil MUR.N, CNOOC subsidiary Nexen 0883.HK and China's Sinopec 600028.SS.

Arnold added any decision to shut in production would be made by all the Syncrude owners, who may each have different opinions on the matter.

Editing by James Dalgleish