Imperial Oil to end Syncrude services contract as Suncor takes over

By Dan Healing   

General Energy Manufacturing Oil & Gas energy imperial manufacturing Oil Sands oilsands Suncor Syyncrude

Switching operatorship a sign the oil sands mining industry has evolved from a high-cost and risky, to more proven and predictable.

Syncrude upgrading employees with one of the world’s largest vacuum distillation units in the background.
Photo: Syncrude

CALGARY — Imperial Oil Ltd. says it will relinquish its contract to provide business management services to Syncrude Canada Ltd. when Suncor Energy Inc. takes over as operator of its oil sands mine and upgrader works at the end of 2021.

Under the contract, which has been in place for about 14 years, staff from Imperial were seconded to certain positions at Syncrude and provided people to assist in implementing strategies, while Syncrude remained the day-to-day operator.

On Nov. 24, Suncor, which has a 58.74% stake in Syncrude, announced it had agreed in principle with partners Imperial (25%), CNOOC Oil Sands Canada (7.2%) and Sinopec Oil Sands Partnership (9%), that it would become the operator.

“Imperial continues to provide operational, technical and business management services to Syncrude under the management services agreement. A transition plan is being developed,” Imperial spokeswoman Lisa Schmidt said.


Suncor and Syncrude recently completed a project to add pipelines connecting Suncor’s Base Plant with Syncrude’s operations. The project is expected to improve efficiency by providing options for each mining and upgrading operation in the event of planned and unplanned production outages.

Switching operatorship at Syncrude is a sign of the evolution of the oil sands mining industry from a high-cost venture with risky, unproven technology to one that’s much more proven and predictable, said Joe Doucet, dean of the Alberta School of Business at the University of Alberta.

He pointed out that when Suncor opened Canada’s first oil sands mining project in 1967 and Syncrude followed 11 years later in 1978, there were doubts about whether the remote projects would be successful. Forming partnerships became a way to share the risk.

“When Syncrude started producing in the late ’70s, I think it’s fair say in hindsight there was a fair bit of technology risk. You know, ‘would this really work?”’ he said.

The two mining projects have competed with each other for labour and inputs but because the companies involved don’t control the price of oil, competition is less intense than it would be in manufacturing, for example, Doucet said.

Since 2016, Suncor has increased its ownership in the Syncrude venture from 12% to 58.74%.

It bought Canadian Oil Sands and its 36.74% stake in 2016, adding Murphy Oil Corp.’s 5% a few months later. In 2018, it bought another five per cent stake from Mocal Energy Ltd., a subsidiary of Japan-based conglomerate Mitsubishi Corp.

Analysts commenting on the announcement were skeptical about Suncor CEO Mark Little’s pledge to improve Syncrude operational reliability to achieve an average of 90% utilization and a cash operating cost per barrel of $30.

“The company believes it can drive average utilization rates to 90% as compared to the five-year average of less than 80%, with only six quarters (of the last 20) exceeding the 90% target,” pointed out National Bank analyst Travis Wood in a report.

He said the cost target would represent a major change compared with Syncrude’s five-year average of $39 per barrel and would be 10% to 20% lower than recent Syncrude guidance.

CIBC analyst Dennis Fong noted that Syncrude has set similar targets in the past after investing in new operating procedures, maintenance, and supplemental equipment, but has missed because of unforeseen events including Alberta’s mandatory oil production curtailments and, this year, an extended maintenance shutdown due to pandemic-related safety measures.

Suncor says it hopes to realize cost-saving synergies of about $300 million per year by becoming the Syncrude operator.



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