CALGARY — The latest in a series of operational and reliability problems at the giant Syncrude oilsands facility has raised questions about whether the joint venture’s partners can turn the project around.
“Based on the evidence to date, they have not been successful at improving reliability overall, given that, including (expected results in) 2018, we have not seen a noticeable improvement in production,” GMP FirstEnergy analyst Michael Dunn said in an email.
“They have talked in recent quarters of having made progress in improving reliability of some of the historical problem areas at Syncrude, but new problems continue to arise,” Dunn said of the most recent outage there.
Syncrude confirmed that power to the oilsands upgrader went out last week, while Reuters reported the project’s oil output could be affected through July.
Tuesday, a Suncor Energy Inc. spokesperson confirmed production would likely remain offline at least through July.
The outage has sent the front-month U.S. crude spread surging to the widest in nearly four years.
Suncor, the majority partner in the project with almost 59 per cent, has repeatedly said it can boost production and performance at Syncrude.
The news of the production problems has hit the shares of both Suncor and Imperial Oil Ltd., which owns 25 per cent of Syncrude, hard.
Suncor, Canada’s largest integrated oil producer, fell 3.5 per cent on Monday to $51.47 on the Toronto Stock Exchange, while Imperial shares fell 1.6 per cent to $32.04.
Canaccord Genuity analyst Dennis Fong said in a research note that such an outage could reduce Suncor’s production by 65,000 barrels per day this quarter and impact 30,000 bpd for Imperial.
A Syncrude spokesperson directed all questions about the incident to Suncor and Imperial, neither of which responded to a request for comment before deadline.
In recent years, Suncor has been buying up rivals’ stakes in Syncrude, including its $6.6-billion takeover of Canadian Oil Sands Ltd. in 2016 for 38 per cent of the joint venture.
Since that deal, it also struck a $937 million deal for Murphy Oil Corp.’s 5 per cent stake in Syncrude in 2016 and a $730 million deal for Mocal Energy’s 5 per cent stake this year.
As Suncor has increased its ownership stake, the company has said it was working with Imperial to improve operational performance, but the joint venture has been hampered by a series of incidents, including a fire and explosion in March of last year.
In a research note, Tudor Pickering and Holt analysts called last week’s power outage “another operational hiccup” that could hurt Suncor as “investors have looked for ongoing improvements in reliability to prove the value of the noted acquisitions.”
Meanwhile, the outage could result in some upside for Western Canadian Select oil prices.
“From a broader perspective, downtime at Syncrude should free up some capacity on a tight pipeline system, with any available space likely to be soaked up by heavy barrels on Enbridge’s Mainline, driving a near term tightening of WCS pricing,” according to the Tudor, Pickering and Holt note.
The discount for WCS prices has widened into the mid-US$20 per barrel range in recent months as all of Canada’s export pipelines have filled up and pipeline operators such as Calgary-based Enbridge Inc. have rationed space on their lines by as much as 50 per cent at various times.
The outage at Syncrude, which is capable of producing 360,000 barrels per day, could therefore have a significant impact on pipeline apportionment.
Canaccord Genuity’s Fong noted that recent turnarounds and outages in the oilsands caused the differential between WCS and WTI to shrink to between US$15 and $US 18 per barrel.
“Syncrude is very important. It’s one of the longest-standing and longest-lifespan systems going,” Tim Pickering, founder and chief investment officer at Auspice Capital Advisors, told Bloomberg. “So having those barrels off, which are considered base barrels for the system, is fairly impactful.’’