MARKET ACITIVITY/TRADING NOTES FOR DAY ENDING THURSDAY, APRIL 16, 1998 (3)
TOP STORIES
Syncrude Quickens $1.5B Aurora Plan
The Financial Post
FORT McMURRAY, Alta. - Syncrude Canada Ltd. is planning to speed up its expansion program to reduce overall operating costs in a period of low oil prices, its president said yesterday.
Jim Carter said completion of the $1.5-billion Aurora mine, a major part of the giant oilsands consortium's $6-billion expansion plan, is now expected to be advanced by one year to 2000. "When the market action occurred we were ready for it," Sehgal says. "The past three or four days have been very good to us."
Other parts of the spending plan, including the $3-billion expansion of its upgrader, are on schedule to be completed by 2007.
Under the plan, which will be put to Syncrude's 10 owners by June for final approval, construction of the Aurora mine would start this summer, with first production scheduled for late 2000.
While other oil producers are cutting spending because of low oil prices, Carter said it makes economic sense for the new mine to become operational sooner because of its low production costs.
The mine, 35 kilometres from Syncrude's Mildred Lake plant, can produce Syncrude's light oil at $9 to $10 a barrel by using new technology. That compares favorably with $13 for existing production.
The plant is switching to new mining methods that involve a truck and shovel operation, more processing of the oilsands on site and transportation to the extraction plant by pipeline. At present, the ore is mined in a bucket-wheel operation and shipped to the plant by conveyor belts that are costly to maintain and break down often.
"It really helps us on the cost side," Carter said. "It's robust even at lower oil prices. We get our costs down earlier as a result of bringing it on line earlier."
The new mine will reduce Syncrude's overall unit costs to the $11 to $12 a barrel level when combined with existing operations.
Aurora will add 40,000 barrels of oil daily to Syncrude's production, boosting its average output in 2001 to almost 260,000 b/d from 220,000 b/d.
The plant near this northern Alberta community celebrated a major milestone yesterday when it shipped its one-billionth barrel of Syncrude light blend oil. This is obtained by separating oil from sand and upgrading it on site. The blend is of such high quality it often commands a premium of up to $1 a barrel over the benchmark West Texas intermediate, which closed yesterday at US$15.90, up US44›.
"Very few oilfields in Alberta have produced a billion barrels of oil and none have done so in such a short time," said Eric Newell, Syncrude chairman and chief executive.
When Syncrude first started in 1978, it cost $30 to produce a barrel of oil.
Aurora's new schedule means the consortium's owners will have to find the cash for capital costs ahead of schedule. The $1.5 billion in capital spending would be equally distributed over the next three years.
Carter anticipates the owners will back Aurora's new schedule.
"On the positive side, we have been able to get our operating costs down to the point where we provide a pretty good safety net in a low crude oil price environment."
The Syncrude consortium is a joint venture owned by some of the country's largest oil companies, including Alberta Energy Co., Canadian Occidental Petroleum Ltd., Gulf Canada Resources Ltd., Imperial Oil Ltd. and Petro-Canada.
It's Official - One Billion Barrels Of Oil From Syncrude
Syncrude Canada, the giant oil sands producer located north of Fort McMurray, Alberta, shipped its billionth barrel of high quality Syncrude Sweet Blend crude oil today, Thursday, April 16. The billionth barrel entered the pipeline to head to Edmonton around midday. Syncrude is the first oil sands producer to ship a billion barrels.
''Syncrude's billionth barrel arrived almost six years ahead of the schedule we set when production began in 1978. Back then, we produced our first barrel for around $30 -- our one billionth barrel cost around $13,'' said Eric Newell, Syncrude's chairman and chief executive officer. ''Very few oil fields in Alberta have produced a billion barrels of oil and none have done so in such a short
time.''
Roger Dunn, chairman of Syncrude's Owners' Management Committee, said: 'This achievement is a source of pride and satisfaction for all of Syncrude's owners and its employees, past and present. And this is only the beginning. We will be increasing production substantially as part of our $6 billion Syncrude 21 expansion program. The second billion should happen in less than ten years.''
''Syncrude's first billion barrels have touched Canadians across the country,'' Dunn added, ''providing employment and technology spin-offs as well as generating billions of dollars for governments to help build schools, hospitals, highways and other enduring socio-economic benefits.''
SYNCRUDE BACKGROUNDER
A BILLION BARRELS FOR CANADA
April 16, 1998, marked the shipment of the billionth barrel of crude oil from Syncrude Canada's operation near Fort McMurray, Alberta. As a symbol of achievement the billionth barrel represents a legacy of benefits extending far beyond petroleum exploitation into education, the arts, health, research and technology, and a variety of Aboriginal initiatives. How big is a billion barrels? Enough to have created new technologies and knowledge-based industries. Enough to have generated billions of dollars for governments to help build schools, hospitals, highways and enduring socio-economic benefits.
Environment--Over the next ten years, Syncrude will invest over $1.6 billion on new technologies that will enhance its environmental performance.
Community Investment--To date, Syncrude has contributed over $15 million to support community based education, arts and culture, recreation and youth, and environment, health and safety initiatives in Alberta and across Canada.
Employment--With an employee base of 3,500 people, and an average of 1,000 maintenance contractors, Syncrude is one of the largest private-sector employers in Alberta.
Government Revenue--To date, royalty payments, and federal and provincial taxes from Syncrude to the Governments of Alberta and Canada, exceed $4 billion.
Science and Technology--Syncrude operates one of the larger private-sector research programs in Western Canada. With annual expenditures of over $30 million, it is a top-35 research and development investor.
Aboriginal People--Syncrude is Canada's largest industrial employer of Aboriginal People. Over $66 million is spent annually with Aboriginal businesses, and on direct employment, salaries and benefits.
Business Development--Syncrude spends more than $1 billion annually on purchased goods, services and salaries. In addition, more than $6 billion will be invested over the next ten years on capital expenditures to expand the operation.
Securing Canada's Energy Future--Syncrude will produce 220,000 barrels a day of high quality, light, sweet crude oil in 1998, representing 20 percent of Canada's light and medium crude oil production.
Production Milestones
Start of production in July 1978
50 million in 1980
100 million in 1982
200 million in 1985
400 million in 1989
800 million in 1995
one billion in April 1998
Producers Support Pipeline Toll Increase
The Financial Post
Interprovincial Pipe Line Inc. and its U.S. affiliate, Lakehead Pipe Line Partners LP, have reached a toll agreement with the Canadian Association of Petroleum Producers for the proposed Terrace crude oil pipeline expansion project.
IPL, a wholly owned subsidiary of IPL Energy Inc., has applied to the National Energy Board to expand its crude oil pipeline system to the U.S. Midwest from Canada.
The proposed expansion, scheduled to begin service in September 1999, includes 619 kilometres of new pipe between Kerrobert, Sask., and Gretna, Man.
The project will ultimately provide an additional 520,000 barrels a day of heavy crude capacity, at a cost of about $1.4 billion.
The agreement with CAPP provides for a fixed toll increase of 5› a barrel, or about 3.5%, for shipment from Edmonton to Chicago.
CAPP agreed to the increase because it wants the extra capacity from the pipeline. Its support means the NEB - which concluded a two-day hearing yesterday - isn't likely to reject the application.
The U.S. Federal Energy Regulatory Commission must also give approval.
Pending approvals, the first phase of the Terrace project will provide an additional 95,000 b/d in January, rising to 170,000 b/d by the end of 1999.
"For a small increase in overall tolls, the Terrace tolling agreement provides shippers with toll stability and certainty," said Brian MacNeill, IPL Energy president and chief executive.
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