Suncor Approves funding for Next Phase of Oil Sands Growth

Suncor Energy has approved funding for the next phase in the company's oil sands growth strategy and its 2005 capital spending plan.

Suncor's Board gave final approval to the expenditures required to construct a $2.1 billion upgrader expansion, which includes the addition of new coking facilities. To feed the expanded upgrader, Suncor also plans to spend an estimated $1.5 billion to boost bitumen production at the company's in-situ and mining and extraction facilities. Bitumen from third parties is also expected to supply the expanded upgrader. Final Board approval for some components of the bitumen production plan are still pending. Regulatory approval for the expansion was granted earlier in 2004.

The combined $3.6 billion investment in upgrading and bitumen production is expected to increase Suncor's oil sands production capacity to 350,000 barrels per day in 2008. Engineering for the project is approximately 50% complete. Preliminary fieldwork, foundation construction and the manufacture of major vessels and equipment are in progress. Cost projections include current estimates for material and labor costs.

"Increased oil sands production is central to our long-term strategy," says Rick George, president and chief executive officer. "With our staged approach to growth, we expect to expand production steadily, reliably and at a competitive cost."

This project, as well as other expansion projects currently being undertaken by Suncor, are key components of the company's Voyageur growth strategy - a multiphase plan to increase production to more than a half million barrels per day in the 2010 to 2012 time frame.

Capital Spending

In 2005, the company expects to spend $2.5 billion, an increase of approximately 47% over 2004 capital spending. Spending plans include:

  • Approximately $1.5 billion to support oil sands development.
  • Approximately $400 million in 2005 on Canadian downstream operations, with the majority directed toward meeting federal regulations for diesel desulphurization at the company's Sarnia refinery. Funds will also be directed toward plans to expand the refinery's throughput capacity and enable it to process approximately 40,000 barrels per day of oil sands sour crude blends. When all components of this project are completed in 2007, Suncor expects this project will cost a total of approximately $800 million.
  • In Suncor's U.S. downstream operations, investment in clean fuels technology is also a priority. Capital spending of approximately $260 million (US$195 million) in 2005 will be used primarily to meet clean fuels regulations while also modifying the company's Denver refinery to accommodate approximately 10,000 to 15,000 barrels per day of oil sands sour crude blends. The total cost of this project is expected to be about US$300 million.
  • Approximately $260 million will be invested to support the profitable growth of natural gas production.
  • Approximately $15 million is planned to pursue renewable energy opportunities.

  • To support longer-term growth, Suncor expects its capital spending to average $2.3 billion to $2.5 billion per year. Suncor's plans target increasing oil sands production by an average 8% to 10% annually, while earning a 15% return on capital employed at US$28 WTI benchmark crude prices.

    "Suncor's long-term capital investment plans remain squarely focused on our integrated business strategy - increasing oil sands production and earning a solid return on our investment," said George. "While we invest for future growth, Suncor will remain focused on managing debt and maintaining a strong balance sheet."

    Cost estimates are, by their nature, uncertain and can be subject to wide variances as engineering is developed and even as construction progresses. Estimates are subject to revisions, which may be material.

    All amounts are in Canadian dollars, unless otherwise noted.

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