Suncor Energy's Board gives final approval to $20.6 billion oil sands expansion

abarrelfullabarrelfull wrote on 29 Mar 2013 09:49

January 30, 2008

Suncor Energy announced today that its Board of Directors has given final approval to a $20.6 billion investment that is expected to boost crude oil production at the company's oil sands operation, located north of Fort McMurray, by 200,000 barrels per day (bpd).

The Board's decision is a key step in achieving Suncor's long-term goal of responsibly increasing crude oil production capacity to 550,000 bpd in 2012 — and follows through on a growth strategy that Suncor first announced in 2001.

"Our long term growth strategy called for us to double our business and now, with the Board's support, we're constructing an expansion project that is thoroughly planned and engineered," said Rick George, Suncor's president and chief executive officer. "The years of pre-work leading up to this point will also help us deliver another commitment to our stakeholders — that we would work to ensure all future growth is completed in a safe, reliable and environmentally responsible manner."

The expansion plans include constructing four additional stages of in-situ bitumen production, a new upgrader (Suncor's third) to convert that bitumen into higher-value crude oil, and various infrastructure and utilities.

"Suncor's business has historically relied on oil sands mining. This expansion puts in-situ development on a more equal footing to our mining operations and proves again how investments in new technologies can enable business to grow, while also allowing us to reduce our environmental footprint," said George. Suncor's in-situ operations disturb only about 15% of land, as compared to oil sands mining and more than 90% of the water needed for the process is recycled.

Of the estimated total of $20.6 billion, Suncor has already invested approximately $2.5 billion on the expansion, including detailed engineering, site work and fabrication of major vessels. In addition, Suncor's consultation with stakeholders has resulted in a project designed to mitigate many of the environmental impacts oil sands development creates.

One area of particular focus is improved water management. Having already reduced water withdrawals from the Athabasca River, Suncor plans to proceed with this expansion without requesting any increase to its water licence. The project also calls for emission abatement equipment and sulphur handling systems to be installed to improve air quality and reduce odours, while new equipment and processes are also in the plan to improve energy efficiency.

"Suncor strives to combine strong financial results with equally robust environmental performance," said George. "We believe this latest investment marks an exciting new chapter for our company as we invest in both expanding our business and working to improve our environmental performance."

The expansion is designed to be completed in a phased manner. Mechanical completion of the new upgrader is expected to be completed in 2011, while bitumen feed from the new stages of in-situ production is expected to begin operation in 2009 through 2011. Crude oil production is expected to begin ramping up in late 2011, with full production capacity of 550,000 bpd expected to be achieved in 2012. Suncor's plans for some components of in-situ expansion are still subject to regulatory approval and, as such, the company's schedule is subject to change.

The capital required to fund the expansion is expected to be financed through cash flow from operations, credit facilities and access to debt capital markets.

"While we are firmly committed to our growth plans, we're also placing a strong focus on the efficiency and productivity of our existing operations," said George. "How we perform on safety, reliability, operational costs and environmental performance sets the foundation for what our stakeholders can expect in the future."

Background information

Project Overview

The $20.6 billion investment (estimate accuracy range of +14/-10%) approved by Suncor's Board of Directors is expected to deliver an integrated expansion to boost production capacity to 550,000 bpd in 2012 from the current planned expansion of 350,000 bpd.

Bitumen Supply — An investment of approximately $9 billion (with an estimate accuracy range of +16%/-13%) is to be made to construct four stages of in-situ production. Each stage is expected to produce an average of approximately 68,000 bpd of bitumen. (Depending on certain operational and market conditions, excess bitumen may be sold to market as a heavy crude blend.)

Upgrading — An investment of approximately $11.6 billion (with an estimate accuracy range of +12%/-8%) will go towards construction of an upgrader designed to process 245,000 bpd of bitumen into 200,000 bpd of crude oil. The product slate is expected to consist of approximately 85% sweet crude oil and diesel, and 15% sour crude oil. Oil products are planned to be shipped to market through third-party and Suncor-owned pipelines.

The cost estimates above include investments in infrastructure including pipelines, camps, administration facilities, cogeneration, tank farms and an interchange on Highway 63 to enable safe traffic flow. Expansion plans include integration with existing operations to allow for improved efficiency and flexibility.

The cost estimates above do not include expenditures associated with commissioning and start-up of the new facilities. Currently, this is estimated at $820 million (with an estimate accuracy range of +15%/-10%).

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

Suncor recognizes the environmental challenges of growth are significant and the company is committed to taking action to ensure development proceeds in a responsible way:

  • Water - Suncor has reduced water use per barrel by nearly 50% during the past five years. With this expansion program, the company plans to spend $225 million to further improve water management. As a result of plans to reduce water consumption and increase treatment and recycling, the company did not seek an increase in its water licence for the construction or operation of its planned third upgrader. In Suncor's in-situ operations, more than 90% of the water used for steam generation is expected to be recycled.
  • Land - This growth program invests significantly in an expansion of in-situ operations, which use only about 15% of the land normally disturbed by oil sands mining and do not produce tailings. In the development phase, Suncor plans to use new technology to reduce the impact of seismic lines. Suncor is also undertaking integrated land management practices with neighboring companies and industries to reduce the cumulative effect of resource development.
  • Air - Suncor has reduced greenhouse gas emission intensity at its oil sands plant by approximately 50% compared to 1990 levels. While this expansion will lead to an increase in absolute greenhouse gas emissions, the company continues to investigate technologies such as carbon capture and storage that hold the potential for reducing absolute emissions in the longer term. The company also continues to target technologies to reduce intensity in other emissions. For example, approximately $800 million is being spent to reduce sulphur dioxide emissions through the construction of a new sulphur plant. Improvements in emissions of nitrogen oxides are also expected and Suncor will continue to investigate gasification options, which could enable the company to turn petroleum coke, an oil sands by-product, into a clean energy source. Investments in new equipment and processes are also expected to mitigate operational odours.

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