Syncrude Partner Imperial Sees Expansion Delayed Until After 2020

An expansion of the Syncrude oil-sands joint venture will likely be put on hold until after 2020, the project's operator Imperial Oil Ltd. (IMO) said Wednesday.

"Imperial is of the view that expansion would not happen before the end of this decade," Imperial Oil spokesman Pius Rolheiser said.

Syncrude's largest owner with a 36.7% stake, Canadian Oil Sands Ltd. (COS.T), has been promoting a plan since early last year to expand the Syncrude project's crude oil production capacity from 350,000 barrels a day to about 550,000 barrels by 2020.

But the reluctance of Imperial Oil, which owns a 25% stake and manages the project, would effectively nix those plans, as any expansion requires approval of all the partners.

Imperial Oil made its comments on the Syncrude project Wednesday after FirstEnergy Capital analyst Mike Dunn wrote in a research note that he believed support for the expansion plans had waned among Syncrude's other large partners, including Imperial Oil, which is 70% owned by Exxon Mobil Corp. (XOM), and Suncor Energy Inc. (SU). Dunn suggested that Imperial Oil and Suncor would be more focused on building their own oil-sands projects - Imperial's Kearl project and Suncor's Fort Hills and Joslyn project - for the rest of this decade, rather than on expanding Syncrude.

Imperial's Rolheiser said that Imperial remains committed to developing the entire resource at Syncrude, but said its "first priority is improving and sustaining the reliability of Syncrude's base operation."

Syncrude's production at around 300,000 barrels a day has fallen short of its full capacity, in part due to equipment reliability issues. Canadian Oil Sands last month cut the project's production outlook due to extended equipment maintenance, and it said Tuesday evening that production had been temporarily shut down due to a malfunction of a coker.

A Suncor spokeswoman declined to comment. Canadian Oil Sands spokeswoman Siren Fisekci said the expansion plans had been set after a discussion with all the Syncrude partners, though she said that Imperial's view on the project means it likely won't go forward as initially laid out.

Syncrude's other partners include China's Sinopec Corp. (600028.SH), Nexen Inc. (NXY) Mocal Energy Ltd. and Murphy Oil (MUR).

FirstEnergy analyst Dunn said that pushing back the expansion plans and focusing on improving the current project might be good news for Canadian Oil Sands stock, as it would remove the weight of a large capital expenditure program that wouldn't pay off for years and relieve some investor concerns about unreliability of current operations.

On the Toronto Stock Exchange Wednesday, Canadian Oil Sands shares closed down less than 1% at C$19.40, while Imperial Oil shares declined 2.8% to C$40.01 and Suncor shares closed down 4.6% to C$29.01.

-By Edward Welsch, Dow Jones Newswires; 403-229-9095; edward.welsch@dowjones.com

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