CALGARY – Improving reliability is a major focus at the Syncrude oilsands mine, the CEO of the project’s biggest partner said Wednesday — a week after a key piece of equipment had to be taken offline.
But Ryan Kubik, the new Canadian Oil Sands Ltd. (TSX:COS) CEO, said it’s not going to be easy — likening it more to a marathon than a sprint.
“It boils down to the complexity of the operations,” Kubik told reporters following the company’s annual general meeting — his first since taking on the top post in January.
Last week, a valve leak caused an outage at one of Syncrude’s cokers — a piece of equipment used to process tarry oilsands bitumen into an easier-to-refine product. The plant should be down for roughly 30 days while gunk left behind from the coking process is cleaned out.
As a result, Syncrude is now expected to churn out between 95 million and 105 million barrels this year, down from a previous estimate of 95 million to 110 million barrels.
“These are very complex operations and reliability isn’t a matter of fixing one piece of equipment and getting it up and running,” said Kubik.
“You have to fix various pieces along that production chain in order to get the ultimate goal, which is higher production coming out of the facility. It is a little bit more of a marathon as opposed to a sprint, if you will.”
Also Wednesday, Canadian Oil Sands lowered the estimated cost for replacing two mine trains at the Mildred Lake mine by $300 million to $3.9 billion. The project is still scheduled to be completed by the fourth quarter.
Part of the reason for the reduced cost is that the industry has a better understanding of labour productivity in the oilsands region than it has in the past, Kubik said.
“It’s really about being methodical, disciplined, having the right scope up front and then executing in accordance with those plans and not having any unplanned things that creep in after the fact,” he said.
Canadian Oil Sands has lowered its 2014 capital spending estimate to $928 million due to the reduced cost of the Mildred Lake project.
The Calgary-based company said in December it expected $1.1 billion in capital spending this year, mostly on previously disclosed projects.
It also said it now expects sales revenue to be higher this year than previously thought, despite lower forecast output, due to a higher anticipated selling price for oil.
Based on its 2014 outlook, Canadian Oil Sands figures every $10 move in oil prices up or down has a $250 million impact on cash flow from operations, Kubik told shareholders.
Sales for 2014 now are estimated at $3.528 billion and cash flow at $1.194 billion or $2.46 per share — up from the original estimate of $3.4 billion in sales and $1.2 billion of cash flow, or $2.39 per share.
In the first quarter ended March 31, Canadian Oil Sands had $357 million or 74 cents per share of cash flow from operations, up from $275 million or 57 cents per share in the same quarter of 2013.
The company also reported Wednesday that it had $172 million or 35 cents per share in net income in the first quarter, down from $177 million or 37 cents per share a year earlier.
Analysts surveyed by Thomson Reuters had on average been calling for earnings of 57 cents per share.
The lower net income was attributed to due to a higher tax expense and the impact of currency fluctuations, which created a higher unrealized foreign exchange loss on its long-term debt — a non-cash expense.
Canadian Oil Sands holds a 37 per cent stake in Syncrude, while Imperial Oil Ltd. (TSX:IMO) has a 25 per cent stake and plays a big role in managing the project’s day-to-day operations. The other partners include Suncor Energy Inc. (TSX:SU), Chinese firms CNOOC and Sinopec, Mocal Energy and Murphy Oil.
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