Canadian Oil Sands winds down capital spending on major projects at Syncrude
Syncrude's largest owner Canadian Oil Sands reported third quarter net income of $87 million, or $0.18 per share, down substantially from the $246 million reported for the same period last year. The drop was attributed to lower crude oil sales, unfavourable foreign exchange and higher transportation costs. The company provided the following update on its Syncrude Oil Sands operation:
- Third quarter production averaged 244,800 barrels per day (bpd); production numbers were slightly below plan due to an unplanned outage of their sulphur processing units.
- The company reported substantial completion of its $3.9 billion Mildred Lake Mine Train Replacement (MLMR), which came in on-time and on the low-end of the expected budget. These new mine trains incorporate Syncrude's wet crushing technology, which is expected to improve bitumen recovery and reduce maintenance requirements. MLMR has begun commissioning in October and should start-up by year-end.
- A new $1.9 billion Centrifuge Tailings Management Project was also reported at 90% complete. The new facility will reprocess Mature Fine Tailings (MFT) from the tailings pond and produce a soft clay-rich soil that can be used in land reclamation. The company expects the new plant will be put into service by mid-2015.
- Since both MLMR and the new centrifuge plant are almost complete, the company noted that spending on major capital projects will be winding down, leaving more free cash flow to pay down debt.
- Operating costs for Syncrude were reported at $47.73 per barrel for the last quarter, slightly higher than the $46.15 reported in Q3 of 2013. Higher maintenance costs, higher natural gas prices and unplanned outages on the sulphur processing units were blamed for the increase.
- The company realized an average sale price of $102.58 per barrel for its Synthetic Crude Oil (SCO) product. Sale price was about 10% lower than the same period last year due to lower spot prices and a weaker Canadian dollar.
Canadian Oil Sands stock (TSX:COS) currently yields an 8% dividend. The company noted in their quarterly news release "we will continue to assess dividend levels in the context of crude oil prices" which suggests that the dividend may be at risk as current quarterly payouts of $170 million may not be sustainable going forward.