Oil and Gas

UPDATE 2-Canada's Suncor plans C$20 bln oil sands expansion

(Recasts with details and comments. Changes dateline, previously TORONTO)

CALGARY, Alberta, Jan 30 (Reuters) - Suncor Energy Inc SU.TO said on Wednesday it will spend C$20.6 billion ($20.8 billion) on an expansion scheme that will make it the biggest producer in the oil sands of northern Alberta.

Suncor’s board of directors gave the go-ahead for the Voyageur project, a 200,000 barrel-a-day expansion of the company’s already massive oil sands operations near Fort McMurray, Alberta. Voyageur will boost output to 550,000 barrels a day when complete in 2012.

The project is the latest of more than C$100 billion worth of plans to tap the oil sands to feed demand from U.S. refiners for Canadian oil.

Production from the northern Alberta oil sands, the largest oil reserves outside of the Middle East, is expected to nearly triple to 3 million barrels a day by 2015.

Suncor has been planning Voyageur since 2003, but has held off committing to the expansion so it could firm up its planning and avoid the multibillion-dollar budget overruns that have plagued earlier expansions by the company and its rivals.

“They took the time to get this stage so they could come to market with a number that is achievable and defendable over the construction period,” said Chris Feltin, an analyst at Tristone Capital.

Included in the C$20.6 billion estimate is C$11.6 billion earmarked for the construction of a third upgrader at Suncor’s project site that will produce 200,000 barrels per day of refinery-ready synthetic crude from 245,000 bpd of tar-like bitumen stripped from the sand.

A further C$9 billion will go to four 68,000 bpd expansions of Suncor’s Firebag in-situ project to supply the feedstock for the upgrader. The in-situ technology uses steam pumped into the ground to liquefy the gooey bitumen so it can flow to the surface.

Suncor currently produces close to 260,000 barrels a day and will boost production to 350,000 bpd by the end of the year -- matching the capacity of Syncrude Canada Ltd, now the biggest producer -- as it adds new processing equipment and mining capacity.

Voyageur will cost about C$100,000 per barrel of daily production capacity, a price similar to those anticipated for other projects, including an expansion planned for Royal Dutch Shell's RDSa.L oil sands project.

Despite the cost of Voyageur, Suncor Chief Executive Rick George said that in 2012 Suncor’s operations will produce a 15 percent return at oil prices of $60 a barrel, about two-thirds of the current price, as its production rises.

“Our cost advantage relies on scale,” George said on a conference call. “We’re going up in one big leap.”

The company also said the board approved a C$7.5 billion capital spending plan for 2008 with C$6 billion allotted for oil sands projects and another C$1.5 billion planned for sustaining existing operations companywide.

Suncor shares, up 4.8 percent over the past 12 months, rose C$1.96 to C$93.06 on the Toronto Stock Exchange on Wednesday. ($1=$0.99 Canadian) (Additional reporting by Scott Anderson in Toronto and Ritsuko Ando in New York; Editing by Peter Galloway)