SYNCRUDE CELEBRATES RECORD YEAR

It was a year of records in 1999 for Syncrude Canada Ltd., as its annual report, released in May, attests.

For starters, Syncrude reached a new production record of 81.4 million barrels of Syncrude Sweet Blend, its 18th record in 21 years. At $12.64 per barrel, the oil sands joint venture also recorded its lowest ever unit costs. Capital expenditures on the $8-billion Syncrude 21 expansion program topped $752 million.

Some examples of Syncrude’s operations progress are found in the mining area, which is transforming into a highly efficient truck-and-shovel operation complemented by hydrotransport pipelining. Hydrotransport is a key technology behind the viability of Syncrude’s Aurora mine area, which commenced operation May 31. Aurora is 40 kilometers from Syncrude’s main plant site and will introduce a proprietary low-energy extraction system that will bring about 40-percent reductions in the amount of energy needed to produce a barrel of bitumen.

Syncrude is well on track to meeting its aggressive emissions reduction targets for both sulfur dioxide and carbon dioxide.

From 1990 benchmarks, they are expected to fall by 70 percent and 38 percent, respectively, by 2008. Toward this, a new vacuum distillation unit was installed at Syncrude’s Mildred Lake site in November 1999. As well, significant modifications to one of its cokers were made in March 2000.

Years of research into land reclamation are being reflected in Syncrude’s Composite Tails project, which is now beginning the transformation of retired mine areas into lakes and new solid landforms.

Syncrude is Canada’s largest single source of crude oil and the world’s largest producer of oil from oil sands. Target production for 2000 is 90 million barrels and will grow to 165 to 170 million barrels by 2008.

By then, Syncrude Sweet Blend (SSB) will be improved to a higher quality than it is today--with even lower sulfur levels and cleaner burning properties.

Syncrude produces crude oil through a continual process operation: Ore comes in from the mine, it is processed and converted into a finished product which is shipped to refineries.

Production of SSB is going up while costs are falling dramatically (see Table 1).

Table 1

Instead of draglines and bucketwheel reclaimers, Syncrude is moving to a more efficient system of trucks and shovels. As part of this transition, they retired one dragline and two bucketwheel reclaimers from the Base Mine during the year. In July they brought the second truck-and-shovel production train on-line in the North mine area; the first train commenced in 1997.

In total, six 380-ton trucks and two new shovels were introduced to the North mine area. Syncrude worked closely with Caterpillar Inc. to develop these trucks and, in 2000, will be the first oil sands mine to test 400-ton trucks.

By 2007 Syncrude will completely retire its original mining equipment. By then mining operations will be based entirely on trucks and shovels.

Change is likewise under way in how oil sand is moved and processed. Instead of conveyors, half of the ore transport operation has now been converted to the hydrotransport system. With this technology, oil sand and water are combined into a slurry and transported via pipeline to the extraction plant. Hydrotransport is not only the key to mining at long distances from the plant, but also the doorway to improving cost per barrel and reducing greenhouse gas emissions.

The entire mining process now looks like this: Shovels mine the oil sand and dump it into trucks which in turn dump the oil sand into crushers. From there, the oil sand is fed into a cyclofeeder--a mixing box--where water is added. Then the mixture moves to the extraction plant via hydrotransport, starting the separation process.

Some 230 hectares of land were reclaimed during the year and the company says it made excellent progress researching new technologies that will incorporate tailings--sand, water and clay--into the reclaimed landscape. Especially promising is paste technology, which has the potential to entirely eliminate the need for a tailings pond. The paste process separates tailings into their constituent parts: Water is immediately recycled back to the plant while sand is dropped back into the mine pit; what remains is processed into a solid form and used immediately for reclamation into a finished landscape. Field demonstrations in 2000 will help determine the viability of full-scale implementation.

Success with hydrotransport has enabled Syncrude to develop the Low Energy Extraction process, which reduces the process temperatures required to extract bitumen from the oil sand. The first two systems operate at a slurry temperature of 50ºC, down from the traditional 80ºC. The Aurora system, to be installed in 2000, will operate at 25ºC to 35ºC.

Once the bitumen has been extracted from the oil sand, it enters the upgrading operation. Cokers used to be shut down each year for a month at a time. Today, through ongoing continuous improvement programs, their operating capabilities have been extended to 24 to 30 months between maintenance shut downs.

As part of the Upgrader Debottleneck project, a new vacuum distillation unit was brought on-line in November. This process unit increases the yield of SSB from bitumen and will account for 20 percent of the energy efficiency gains in 2000.

Also, a new cogeneration power facility was brought on-line in July at the Aurora site. In only 5 months of operation it delivered net import energy savings of $3.6 million. Energy efficiency gains will increase when exhaust gases from the generator are captured and used to heat water for use in the extraction process. Energy use per barrel of product was the lowest ever in 1999. At 1.23 million BTU, this is a 5 percent improvement over the previous best year in 1997 (see Figure 1). By 2008 Syncrude will use just two-thirds of the energy needed to make a barrel of SSB in 1988.

Figure 1

SO2 emissions from the main stack, however, increased modestly compared to last year at 0.93 tonnes per thousand barrels of production. Significant modifications and improvements are expected to reduce SO2 emissions by a target of 70 percent per barrel and 5 percent total by 2007.

In 1999 the joint venture invested $752 million in capital expenditures to support the Syncrude 21 suite of projects. In 2000 about $500 million will be invested in such projects as the Aurora mine area, a second upgrader debottleneck and the upgrader expansion, which has been approved by the Alberta Energy and Utilities Board. Engineering on the expansion is now under way with a planned 2001 construction start.

As the new upgrader comes on-stream in phases between 2003 and 2004, the highly marketable crude oil produced by Syncrude will feature even lower sulfur content and better overall quality. With the trend across North America toward lower sulfur content in gasoline, SSB will meet some of the toughest environmental standards and be an attractive product to meet growing energy needs.

From a financial perspective, 1999 was a year marked by fluctuating oil prices. The price of West Texas Intermediate (WIT) moved from a low of US$11 at the start of the year escalating to US$27 at the end of the year with an average price for 1999 of US$19.24.

The average exchange rate for 1999 was US$0.67 per Canadian dollar.

Deemed Unit Prices for SSB averaged C$27.91 per barrel at the plant gate (US$19.24 per barrel for WTI crude), up $7.48 per barrel from 1998.

As a result, for the year ending December 31, the owners’ pro forma revenue from SSB crude oil, net of transportation costs, was $2,272 million, up $706 million from the revenue of $1,566 million in 1998.

Operating cash flow, defined as revenue, less direct operating expenditures, corporate G&A, research, and certain financing costs, royalties, and working capital changes, more than doubled to $1,114 million $13.69 per barrel), compared to $6.82 per barrel in 1998. This marks the best year ever in Syncrude’s history and can be credited not only to higher oil prices, but also to employee efforts to reduce operating costs as well as increase production.

Net cash flow, after capital expenditures and before taxes, was $362 million ($4.44 per barrel), compared to $43 million ($0.56 per barrel) in 1998.