Suncor presses ahead with Voyageur expansion

Royalty deal paved way, says CEO

Shaun Polczer
Calgary Herald
Thursday, January 31, 2008

Barely hours after reaching an agreement with the province on royalties, Suncor Energy Inc. on Wednesday pushed ahead with its $20.6-billion Voyageur oilsands expansion.

The project, which will add 200,000 barrels per day (bpd), will take Suncor's oilsands production past 550,000 bpd by 2012, making it the largest oilsands producer in Canada and, indeed, the world.

On Wednesday, company president and CEO Rick George said Tuesday's royalty deal was the catalyst to formally sanction the massive undertaking.

"Was it a factor? Absolutely," he said. "It's fair to both sides and enabled us to move forward overall.

"We do want to be the developer of choice and we do also want to be the developer that's here for the 50- to 100-year run, not just the short term."

Voyageur becomes the latest in a backlog of more than $100 billion worth of oilsands projects on the books slated for the Fort McMurray area.

Suncor joins Shell and Canadian Natural Resources Ltd. among operators that have committed to building multibillion-dollar expansions to extract oil from the gooey sands and send it to U.S. refiners.

More than half of the project's estimated budget -- about $11.6 billion -- is earmarked for the construction of a third upgrader that will convert 245,000 bpd of bitumen into 200,000 bpd of synthetic crude oil.

Another $9 billion will go to expanding the company's Firebag in-situ project, which will be built in four subsequent phases.

At its peak, the project will see 7,800 workers onsite.

Voyageur has been in the works since 2003, but was put on hold while Suncor reviewed costs that were pegged at $10 billion as recently as 2005.

George estimated that some $2.5 billion has been spent to date on front-end engineering and project scope work. "We only have $18 billion to go," he quipped.

George said Suncor took pains to reduce environmental impacts such as water use and said the door is open for applying new technologies, such as coke gasification to minimize the use of natural gas to make oil.

Suncor said the project would generate a 15 per cent return on capital at oil prices of $60 US a barrel, although UBS analyst Andrew Potter estimated an after-tax gain of 12 per cent at oil prices of $70 -- a rate he termed "reasonable."

Oil prices rose 69 cents in New York on Wednesday, to close at $92.33 US.

"(It's) a return that is competitive with full cycle global oil exploration," he noted.

Along with the Voyageur expansion, Suncor announced a $7.5-billion capital budget for 2008, including $6 billion earmarked for oilsands.

"We continue to believe that Suncor represents a best-in-class story from an execution and growth standpoint," said Raymond James analyst Justin Bouchard.

spolczer@theherald.canwest.com

Suncor project overview

- The $20.6-billion investment is expected to deliver an integrated expansion to boost production to 550,000 bpd in 2012.

- About $9 billion is to be spent to construct four stages of in-situ production, with each stage to produce an average of 68,000 bpd of bitumen.

- About $11.6 billion will go toward construction of an upgrader designed to process 245,000 bpd of bitumen into 200,000 bpd of crude oil. The product slate is to consist of approximately 85 per cent sweet crude oil and diesel, and 15 per cent sour crude oil.

- The cost estimates include investments in infrastructure, including pipelines, camps, administration facilities, cogeneration, tank farms and an interchange on Highway 63 to enable safe traffic flow.

- At peak construction in 2009 to 2010, the expansion is expected to employ 7,800 people. On completion, the expansion is expected to create 800 permanent new jobs.

© The Calgary Herald 2008