Guntis Moritis
Production Editor
In addition to its existing oil sands mine and upgrader near Fort McMurray, Alta., Calgary-based Suncor Energy Inc. toward yearend 2003 began in situ production of bitumen with steam-assisted gravity drainage (SAGD) about 25 miles northeast of its existing oil sands plant.
Suncor CEO and Pres. Rick George sees the project as the latest element in the company's strategy to focus on an extremely long-life, low-risk, and relatively low-cost commodity: Canada's massive oil sands resources.
Suncor completed construction of the surface facilities and wells in the $460 million first phase of the SAGD Firebag project in 2003 and expects to produce about 35,000 b/d of bitumen by mid-2005. Its long-term goal, after completing three more phases in the project, is to reach a production level of about 140,000 b/d by 2010.
Suncor's mining and upgrading operation has 225,000 b/d capacity after the completion in 2001 of a $2.64 billion expansion (Project Millennium). Since its start-up in 1967, the operation has produced almost 1 billion bbl of bitumen; it expects to hit that mark in mid-2005.
The product stream marketed from the upgrader is composed of 53% of light, sweet oil; 34% light, sour bitumen; and 13% diesel. These are sold mostly in North America.
Suncor also produces natural gas in various locations in western Canada, and it operates a refining and marketing business in Ontario with retail distribution under the Sunoco brand. The company notes that Sunoco in Canada is unrelated to Sunoco in the US, which is owned by Sunoco Inc., Philadelphia.
Suncor's US downstream assets include pipeline and refining operations in Colorado and Wyoming and retail sales in the Denver area under the Phillips 66 brand.
Suncor's strategy
The mining and in situ projects, along with its purchase of a refinery near Denver and interconnecting pipelines, are part of Suncor's long-term strategy to produce the estimated 13 billion bbl of bitumen resources on its Alberta oil sands leases. The Firebag project contains about 9.6 billion bbl of bitumen.
George said of Suncor, "We're a little bit more like a manufacturing company. A large part of the rest of this industry is chasing the world for reserves. We have a very different strategy. We have the reserves. [Our strategy] is about using technology to produce as cheaply as possible and as environmentally friendly as possible. We have no exploration risk and also have no decline curve, so we have a completely different business model from a conventional crude oil producer."
Regarding Suncor's resource, he added, "It's not unlimited, but at today's rate we have reserves to last over 100 years. We don't develop plans much beyond moving a half-million b/d. That covers us for the next several years, and if you ask most oil companies that question, they barely know what they will be doing next quarter, let alone 7 years out."
Suncor also produces about 200 MMcfd of natural gas that George says is important because it is "a natural hedge against our own energy consumption."
He further adds, "You're not going to see Suncor do a huge diversification off of this strategy. I mean we believe that we are at the low-cost position on total cost of crude oil production in North America."
Suncor's oil sands operating cost averaged $11.50 (Can.)/bbl in 2003, which was $0.40/bbl higher than in 2003 because of higher natural gas prices. George expects an operating cost of $10.75-11.75/bbl in 2004.
The operating cost of the in situ project depends highly on the cost of gas to generate steam. George estimates that at a $4 (Can.)/Mcf gas price, Firebug's SAGD operating costs will be about equal to the operating costs of the mining venture.
Other plans
Voyager is Suncor's next expansion plan, which will increase its production capacity to 500,000-550,000 b/d by 2010-12.
The project includes installing a new vacuum tower (completed in mid-2005, increasing capacity to 260,000 b/d), another set of cokers (completed by yearend 2007, increasing capacity to 330,000 b/d), and later a third upgrader to increase production of synthetic crude to 500,000 b/d by 2010-12.
George said that the four sets of delayed cokers are very large, taking into account that a coker operation considered large in the US handles only 40,000-60,000 b/d.
The coker byproduct is petroleum coke. Suncor uses some of the coke byproduct as a fuel source, markets a small quantity, and landfills the remainder.
Suncor sells all of the sulfur from the process for agriculture use and does not have any stockpiles of sulfur.
George said that Suncor, unlike other companies, does not have problems with water. He explained that he "does not see water as a limitation in any significant way over the next 20-plus years." Suncor has much water onsite, and "utilization of that water. . .is part of the overall game plan," he said.
He added, "So we use it, we recycle, we clean it up, and we're in a very different position from the rest of the industry where it's an issue."
George does not see any problems in marketing the additional bitumen. He said acquisitions such as the refinery near Denver fits into Suncor's strategy to move bitumen into the North American market. After installation of a new hydrotreater at the refinery, Suncor will move about 30,000 b/d of bitumen to the facility. After 2007, the plans include shipping up to 50,000 b/d to the refinery.
"We're not interested in any of the refining assets that we can't reach directly from our oil sands plant."
George estimated that Suncor currently can reach about 70-75 refineries in the US. And as more of a series of announced pipeline reversals are finished, the number of reachable markets will increase.
Of particular interest to George are new opportunities on the West Coast and Utah because of the rapid decline of local crude production.
George does not expect the Kyoto Treaty on climate change, which Canada recently signed, to greatly impact Suncor. He said the federal government gave assurance to the industry in the form of limited liability, plus 15% of total CO2 emissions. This capped the price at $15/ton of CO2. Translated back to Suncor's oil sands production, he said "this is less than $0.30/bbl, if in fact there is an implementation plan at all."
He added regarding Kyoto: "We really haven't seen a detailed plan from the government," and because Canada has changed governments, its plans may change.
Education
George holds a BS in engineering from Colorado State University and a law degree from the University of Houston Law School. He is also a graduate of the Harvard Business School program for management development.
Organizations
George is a member of the boards of Enbridge Inc., Dofasco Inc., and GlobalSantaFe Corp. He is a member of the Executive Committee for the Canadian Council of Chief Executives and a member of the board of the Canadian Institute for Advanced Research.
