Canadian Oil Sands Limited (COS) plans to invest about $1.3 billion at its Syncrude joint venture—in which it holds a 36.74% working interest—in 2013. Approximately 63%, or $836 million, will be invested in major projects to replace or relocate mining infrastructure and to develop facilities to reclaim tailings, a by-product of the mining process.
About $393 million is directed to regular maintenance, which represents smaller projects and annually occurring expenditures to maintain production. The remaining $97 million reflects capitalized interest.
Among the objectives COS has established for 2013 are:
Increase production by about 3%, equivalent to three million barrels gross to Syncrude, over estimated 2012 production.
Improve per barrel operating expenses in 2013 over 2012.
Invest $25 million ($70 million gross to Syncrude) in research and development, directed at reducing operating expenses, improving reliability, enhancing environmental performance and realizing potential cost savings in environmental initiatives.
Complete the Aurora North Tailings Management project.
Achieve 90% completion on the Aurora Mine Train Relocation.
Achieve 75% completion on the Mildred Lake Mine Train Replacement.
COS’ production outlook for Syncrude is 105 million to 115 million barrels (39 to 42 million barrels net to COS). The single point production estimate is 110 million barrels (40.4 million barrels net to COS). The production outlook incorporates a planned turnaround of Coker 8-1 in the second half of 2013.
Sales, net of crude oil purchases and transportation expense, are anticipated to total $3,233 million, based on a WTI crude oil price assumption of US$85 per barrel, a foreign exchange rate of $1.00 US/Cdn, and a discount for Syncrude Crude Oil (SCO) to Cdn WTI of $5 per barrel.
Operating expenses are anticipated to total $1,482 million to produce Syncrude’s blend of fully upgraded SCO. On a per barrel basis, operating expenses are estimated to be $36.67, which includes purchased energy costs of $4.40.
Cash flow from operations is estimated at $1,045 million ($2.16 per share). Cash balances will be used to fund 2013 capital spending and to support dividends, resulting in an expected net debt level of about $1.3 billion at year-end 2013.
Canadian Oil Sands’ 2013 production is currently unhedged. Accordingly, COS’ cash flow from operations is highly sensitive to changes in crude oil prices and foreign exchange rates. Every US$1.00 per barrel change in the annual WTI crude oil price impacts cash flow from operations by about $30 million, or $0.06 per share.