But with little more than a week remaining until he takes the reins of the newly merged Suncor, chief executive officer Rick George remained coy on how long the company would take to bring to life its 200,000 barrel-per-day Voyageur upgrader expansion, which is designed to process the bitumen it produces. Voyageur was scheduled to be built by 2012, but construction was halted in January.
Work has already begun to prepare for resumption of another halted Suncor project, its Firebag 3 oil sands plant, which was half-built when workers were called away in January amid a dramatic move to slash capital spending. Suncor has authorized contractors to finish building a camp and administration building, ahead of an expected green light for that project, which is likely later this year.
And Mr. George said the company will be able to switch on the Voyageur expansion in short order when it so chooses. But, he told analysts on a second-quarter earnings call Wednesday, "initially, we want to be bitumen long."
That means the company intends to produce more bitumen than it is capable of upgrading, turning instead to U.S. refiners to do work it has traditionally done itself. Voyageur will be restarted at some point, but not until Suncor, which is scheduled to complete its merger with Petro-Canada PCA-T by Aug. 1, has a chance to evaluate where it fits in among its broad suite of projects, Mr. George said.
An upgrader is a kind of pre-refinery that takes the thick, heavy oil sands bitumen and transforms it into a product capable of being made into end products like gasoline.
"There's no need to build the upgrader if there's no bitumen to fill it," Mr. George said. "We continue to see very good pull from customers in the U.S. refineries for heavy oil from Canada. So I expect that to be a fairly good strategy over the next four or five years."
Significant drops in heavy oil exports from Venezuela and Mexico have left U.S. refiners scrambling to fill their capacity, driving up the price for a commodity that used to trade at a 30 per cent discount to light crude oil. In recent months, heavy oil has halved that gap, and on at least one day earlier this month was worth more than light crude – a circumstance some observers have never before seen.
Strong heavy oil pricing damages the profitability of upgraders. Still, contractors and business leaders in Fort McMurray have long expected Voyageur to resume construction in coming months. But Mr. George did not make clear whether he intends to restart Voyageur soon – it will take at least three years to finish building it – or whether the project will be delayed.
"We haven't determined yet when we will restart it," he said.
But BMO Nesbitt Burns analyst Randy Ollenberger said Mr. George may be "making a straight bet that he's going to make more money as a bitumen producer and pushing [Voyageur] off."
"He seemed to be backing away from [Voyageur]," Mr. Ollenberger said. "I'd be very surprised if they don't complete it [at some point]. I think it's more a question of timing. And maybe it makes more sense for them to remain a bitumen producer for the next five or six years, so defer that capital until it makes more sense."
That prospect angers labour groups, who see the export of unprocessed bitumen as the export of provincial jobs.
"If a stalwart energy company like Suncor is thinking of heading south, then chances are that almost all other energy companies are having similar thoughts," said Alberta Federation of Labour president Gil McGowan. "And frankly, that's bad news for everyone who works in the energy sector."
Still, others believe Suncor could simply export bitumen from its expanding oil sands operations during the time it builds Voyageur – a prospect that would leave its original plans little changed.
"They'd still have to sanction [Voyageur] in short order to get it on stream in the next four-year time frame," said UBS Securities analyst Andrew Potter.
Globe and Mail, Wed July 22 2009
Byline: Nathan VanderKlippe