By Nia Williams
CALGARY, Alberta, Aug 19 (Reuters) - Canada's largest
synthetic crude project, Syncrude Canada Ltd, is losing roughly
$6 on every barrel it produces at current prices, a company
presentation showed on Wednesday, a stark sign of the pain being
felt by oil sands operators.
Even so, Canadian Oil Sands Ltd COS.TO , the
largest-interest owner in the Syncrude joint venture, said
shutting in production is not something the company would
consider given the high costs involved.
Syncrude is a 326,000 barrel per day mining and upgrading
project in northern Alberta, at which mined oil sands bitumen is
upgraded into refinery-ready synthetic crude.
In a presentation at the EnerCom Oil and Gas conference in
Denver, Colorado, Siren Fisekci, COS vice president of investor
and corporate relations, said Syncrude's break-even cost is C$57
($43.46) a barrel.
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 CLc1 LCOc1 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.
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.
The oil sands are the world's third-largest crude reserves,
but have some of the highest operating expenses globally.
Despite that, producers are reluctant to halt output while
waiting for prices to recover.
Scott Arnold, director of investor and corporate relations
at COS, said the company was focused on improving production to
lower per-barrel costs.
"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," he said. "Shutting in
production is not something COS would contemplate, even at
current spot prices."
Syncrude is a joint venture of seven partners: COS, Suncor
Energy SU.TO , Imperial Oil IMO.TO , Mocal Energy, Murphy Oil (NYSE:MUR)
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.
($1 = 1.3115 Canadian dollars)
(Editing by James Dalgleish)