Suncor Energy to Submit Plans for 3rd Oil Sands Upgrader

Suncor Energy Inc. reports that it will file with Alberta regulators an application to construct and operate a third oil sands upgrader, designed to increase the production capacity of its oil sands facility to more than half a million barrels of oil per day.

Plans call for the new upgrader to be constructed approximately half a kilometer southwest from Suncor's existing upgrader facilities. The new facility would include cokers, hydrotreaters, utilities support and a 50- kilometer hot bitumen pipeline to connect the upgrader with Suncor's in-situ operations.

A decision by regulators is expected to take approximately two years, and construction is not expected to begin until 2007. The proposed upgrader is currently being designed to produce light crude oil. Production from the new facility is expected to be brought on line in phases starting in 2010 with full capacity of approximately 550,000 barrels per day targeted in 2012.

"This is the next step in building on a proven growth strategy," said Rick George, president and chief executive officer. "Filing this application brings us closer to our goal of half a million barrels per day -- more than double our current production capacity."

It is currently estimated that constructing the upgrader will cost approximately $5.9 billion. The estimated capital cost is provided at a very preliminary stage and is subject to a high level of uncertainty. The project scope and engineering detail will continue to evolve and will influence the estimated capital cost. Integration opportunities in the downstream, market analysis, advances in new technology, availability of labour and the cost of critical components such as steel and fabrication, among other factors, will also affect project scope and cost estimates. Final cost estimates for the project must be approved by Suncor's Board of Directors before construction can proceed.

Seeking regulatory approval for the third oil sands upgrader is just one step Suncor plans to take to achieve its long-term production targets. Later this year and in 2006, Suncor is expected to submit separate applications that will outline plans to provide bitumen feed to the proposed upgrader. Costs associated with bitumen feed will depend on the scope and configuration of the facilities. While the company does not yet have preliminary cost estimates for these facilities, costs for bitumen feed could exceed an additional $4 billion. Suncor has also identified the need for additional pipeline capacity from Fort McMurray to Edmonton and the company is pursuing various options to accommodate the additional volumes.

As part of the regulatory process, Suncor identified potential environmental impacts related to the proposed production increases and the actions the company would take to mitigate the impact to air, water and land. Suncor also completed a social and economic impact assessment, which estimated that construction of the proposed upgrader could employ approximately 4,000 workers. Approximately 300 new permanent jobs at Suncor's oil sands facility are expected to be created when the upgrader is in full operation.

"We're working to ensure this project generates strong financial returns for our shareholders, while also ensuring growth occurs in an environmentally responsible way and our communities, especially our neighbours in the Wood Buffalo region, continue to benefit from oil sands development," said George.

Other projects under review

Included with the application for the new upgrader, Suncor also requested approval to build and operate a petroleum coke gasifier that would reduce the company's reliance on natural gas. The gasifier is planned to process about 20% of the proposed upgrader's petroleum coke (a by-product of the upgrading process) into synthetic gas. The synthetic gas would then be used to supply hydrogen and fuel.

Although this technology is not widely used, Suncor believes it is important to advance energy conservation technologies that reduce reliance on natural gas as a fuel for oil sands development while also creating value from by-products like petroleum coke. As Suncor's plans proceed, the company will work to pursue strategies such as carbon dioxide capture and geological sequestration, which support the environmentally responsible commercial development of this technology. It's currently estimated that if Suncor proceeds with construction of the gasifier, it would add an incremental $600 million to the total cost of this project. The gasifier technology cost estimate is also very preliminary and subject to change.

Also on March 14, regulators received a second application from Suncor, which requests permission to proceed with the Steepbank Mine extension. (For more information, see news release issued by Suncor on December 18, 2003). The $350 million cost estimate for this project is primarily sustaining capital as the project does not increase bitumen production.