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Syncrude pegs losses at up to $10/barrel as oil prices collapse

Canada's largest synthetic crude project is not likely to shut down operations, its biggest owner said on Wednesday, even as a company presentation showed it is losing about $10 for every barrel it produces.

Syncrude Canada Ltd, a joint venture project in northern Alberta at which mined oil sands bitumen is upgraded into refinery-ready synthetic crude has a break-even production costs of $46 US a barrel, according to a presentation from Siren Fisekci, vice president of investor and corporate relations. 

Meanwhile, the cost to produce Syncrude's fully upgraded oil is even steeper at $50 US a barrel once interest payments, administration, insurance and other costs are added in, according to the presentation at the EnerCom Oil and Gas conference in Denver, Colorado.

U.S. crude oil, also known as West Texas Intermediate or WTI CLc1, was down 50 cents at $40.30 US a barrel at mid-morning Thursday, after hitting a new 6-1/2-year low of $40.21 US. That means Syncrude's losses could be as steep as nearly $10 US a barrel to produce fully upgraded crude. 

Canada's oil sands, home to the world's third-largest oil reserves, also feature some of the highest operating costs and lowest prices in the world. Benchmark Canadian heavy crude has collapsed to 12-year lows at near $20 a barrel, raising questions about whether some operators would simply shut down to wait out the slump rather than carry on pumping at a loss.

Even so, Canadian Oil Sands Ltd (COS.TO), the largest-interest owner in the 326,000 barrel per day Syncrude mining and upgrading venture, said shutting in production is not something the company would consider.

"From COS' perspective we believe the costs to shut in and later restart production are very significant. This is the case for most if not all oil sands projects," said Scott Arnold, director of investor and corporate relations at COS.

"Shutting in production is not something COS would contemplate, even at current spot prices."

Break-even costs include operating expenses, regular maintenance, capital expenditures, crown royalties and development expenses and reclamation, according to the COS presentation.

Upgrading bitumen into synthetic crude adds extra expense, but the unusually detailed breakdown of costs underlines the difficulties facing all producers in northern Alberta.

Syncrude is a joint venture of seven partners: COS, Suncor Energy (SU.TO), Imperial Oil (IMO.TO), Mocal Energy, Murphy Oil (MUR.N), CNOOC subsidiary Nexen 0883.HK and China's Sinopec 600028.SS.

Arnold added any decision to shut in production would be made by all the Syncrude owners, who may each have different opinions on the matter.

-with files from CTV Two CTV News CTV News Channel BNN - Business News Network CP24