The Bakken might be about to register a friendly-fire victim — a C$11.6 billion Suncor Energy upgrader to convert oil sands bitumen into synthetic crude for refining into fuels.

Suncor, with France’s Total as a 49 percent partner, expects to decide no later than March 31 on the immediate fate of its Voyageur project, which has been in a holding pattern for the last four years, putting an end to its original startup date of 2016.

Since taking control of the oil sands giant nine months ago, Suncor Chief Executive Officer Steve Williams has increasingly hinted that economic challenges could be the undoing of Voyageur.

His explanation has been delivered in clear-cut terms.

“I’m not questioning the need to grow the oil sands industry. It could possibly grow faster. What I’m questioning is the need to upgrade,” he said two months ago.

Turning bitumen into a lighter grade crude “would actually be upgrading into a product that won’t pay for itself in the future,” Williams said, telling reporters after a speech that the question was whether the cost of Voyageur could be justified by the gap between the price of crude going in and the upgraded crude coming out.

View of the future

“It is not a question for today, it is about our view of the future,” he said. “What do we think those margins are going to be five, 10 or 15 years out?” On Feb. 6, he was even more direct in a conference call with analysts and, without naming names, he pointed the finger at the Bakken.

“Everybody is surprised by the speed at which Mid-Continent (the Bakken) crude came into production,” Williams said, projecting that beyond the next five years there could be too much light sweet crude available in North America and too little heavy crude, resulting in light crude getting exported from the continent.

For now, Suncor has taken a write down of C$1.5 billion on Voyageur, disclosing that the partners are close to completing a review of their options, “including the implications of cancellation or indefinite deferral.”

Williams said the pivotal decision expected before March 31 will determine whether to “go ahead with the project as is,” or call a halt, adding “there is no easy way to go to a half- or quarter-sized upgrader.”

However, he insisted “we’re looking at all options going forward,” and was adamant that the partnership formed with Total two years ago remains strong.

Rebalancing required

For Suncor, a decision to abandon Voyageur will involve a rebalancing of the company’s portfolio of oil sands mining and in-situ production in the province of Alberta. If the upgrader is shelved, Suncor would have “even more capital available” to develop its 12.5 billion barrels of in-situ resources, including expansion of its Firebag and MacKay River operations and accelerating the schedules for its Lewis and Meadow Creek projects, Williams said.

Once the Voyageur decision is made “we will talk in more detail about those projects,” he said.

When Suncor took over Petro-Canada in 2009 it stopped work on a project that was about 15 percent built. The investment so far is estimated at about C$3.5 billion.

The advances in drilling technology, which have opened up the Bakken (in North Dakota and Saskatchewan), along with other unconventional plays in Western Canada and the United States, have clogged pipelines and deepened discounts for Western Canadian light and heavy crude slates.

Suncor reported that its oil sands volumes of 378,700 barrels per day fetched an average C$77.37 per barrel in the final quarter of 2012, compared with C$98.02 a year earlier.
Source: Petroleum News

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