Experienced Operator

Production and operating cost performance

Since it began operations in 1978, Syncrude has been successful in growing production and reducing per barrel operating costs (see graph); however, this trend stalled in 2001 when we embarked on our Stage 3 expansion project. We believe one of the reasons for the more erratic performance was the re-direction of efforts towards the Stage 3 project combined with the disruption caused by the construction of a complex, large expansion within an existing operating facility.

In 2006, we completed and started up our Stage 3 expansion, resulting in a rise in Syncrude production to 94.3 million barrels, or an average 258,000 barrels per day; however, the incremental volumes were offset somewhat by a scheduled turnaround of Coker 8-1 earlier in the year and unplanned maintenance of Coker 8-2 late in the year.

Operating costs in 2006 averaged $27.07 per barrel. As the majority of costs are fixed, unit operating costs are highly variable with production levels. In 2006 we saw our cost base increase as we added the people and equipment necessary to support the expanded Stage 3 facility, but it was not until later in the year with the start-up of those operations that we began to benefit from the additional production. As well, the turnaround and maintenance work performed on two cokers contributed to higher operating costs because of the volume impact and the expensing of all maintenance and turnaround costs in the period they are incurred.

Natural gas also has a significant impact on our operating costs. Natural gas is used in our production process as an energy source, but we use it mostly to create hydrogen to raise our product quality to the Syncrude™ Sweet Blend (“SSB”) standard. In 2006, we consumed more natural gas in our operations because of the start-up of Stage 3 and the coker maintenance. Syncrude’s operations are highly integrated, which means energy efficiency is reduced during maintenance and startup periods.

Going forward, we expect to consume higher volumes of natural gas until our Stage 3 operations stabilize, after which we expect to consume about 0.85 gigajoules for every barrel of synthetic oil we produce. This improvement in our energy efficiency should not only contribute to lower operating costs, but also to less greenhouse gas emissions per barrel.

We expect volumes to rise as a result of our expanded Stage 3 facilities with Syncrude now capable of producing 350,000 barrels per day. It may take us some time before we average those volumes, given that we must first stabilize the operation of the new units. Once we have achieved stable design rates, Stage 3 should provide scale economies and corresponding lower per barrel operating costs; however, the effect of inflation – a reflection of the very heated oil sands economy – will temper what we can achieve in terms of operating cost reductions.