Suncor decided to take over Syncrude’s business as consolidation in the tar sands continues

Suncor Energy Inc. is poised to take over the operations of Syncrude Canada Ltd., one of the largest oil sands projects in the country, in the latest example of consolidation in the Alberta pandemic oil sector.

Syncrude is a joint venture between Suncor Suncor, Imperial Oil Resources Ltd. Imperial, Sinopec Oil Sands Partnership Sinopec and CNOOC Oil Sands Canada CNOOC. Despite being owned by heavyweights in the oil industry, the mine itself is managed by Syncrude’s separate governance structure.

That will all change by the end of 2021, when Suncor takes over management of the mine, the Calgary-based company announced Monday evening.

Suncor chairman and chief executive Mark Little told The Globe and Mail Monday night that Imperial, Sinopec and CNOOC have all agreed on the move in principle, although it has yet to receive formal approval.

No money changes hands under the agreement. Instead, Syncrude will become another of Suncor’s multiple operational businesses, similar to its Fort Hills mine, its Oil Sands Base Plant, and the company’s MacKay River and Firebag on-site operations.

Mr. Little said the move will strengthen the company’s operations in the Athabasca region and give Syncrude a competitive edge. In fact, Suncor recently completed two pipelines between Syncrude and Base Plant.

“The owners have been working for a couple of years trying to figure out how to make Syncrude the most globally competitive business it could be, and the bottom line is that Suncor is running it,” Little said.

Suncor believes the change will result in savings of approximately $ 300 million, primarily by consolidating office functions and eliminating duplication in areas such as logistics and infrastructure.

“There will be a downsizing associated with it. You can appreciate how difficult it is, because it translates into job loss, ”Little said.

The oil sector is facing low prices and compressed demand due to the COVID-19 pandemic, a challenge Little said urges changes that reduce costs.

“We cannot continue to duplicate the work. We need to find better ways to move forward, “he said.

“We need to be able to understand how to generate more money from these businesses and working together and taking this step makes a lot of sense.”

The deal signals the first major change in Syncrude’s governance since the transaction began 50 years ago, Little said.

Suncor has consistently collected parts of the deal over the past few years, dating back to 2009 when it merged with Petro-Canada, a deal that resulted in the company having a 12% stake in Syncrude.

That small acquisition put the massive tar sands project in Suncor’s long-term sights, Little said.

In February 2016, Suncor acquired Canadian Oil Sands Ltd. and Syncrude’s 37% stake for $ 6.6 billion. A few months later, in April, he paid $ 937 million for US Murphy Oil’s five percent stake in the project.

In February 2018, Suncor bought another five percent, paying $ 920 million for the stake in Mocal Energy Ltd.

He now owns just 59% of Syncrude and Mr. Little doesn’t see this change.

Rather, he said, the other partners support the move to “strengthen the long-term interests” of the oil sands project.

“It’s always easy when you own it [an asset] outright, but we don’t expect that to ever happen, “he said.

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