Suncor Faces Bleaker Future After Upgrader Fire

Two oil sands upgraders – one belonging to Shell Canada Ltd. and the other to Suncor Energy Inc. (SU) – are on the fritz in Alberta right now, and at least one brokerage house is voicing its disappointment.

One of Suncor’s two upgraders near Fort McMurray will undergo three to four weeks of repair after a Nov. 26 fire. The blaze, which was quickly extinguished, took place as Suncor restarted the facility after it had been shut down for planned maintenance. One of the upgraders will operate at reduced rates, prompting UBS Securities to chop its 2009 production estimate to 277,000 barrels per day, down from 285,000 barrels per day, and its 2008 estimate down to 226,382 barrels per day.

UBS said in a report:

Suncor’s reliability and execution has suffered throughout 2008 resulting in a derating of the company’s once premium valuation. This latest fire certainly doesn’t help the company’s credibility. For Suncor to regain its premium valuation the market will need to see vastly improved execution and reliability.

Meanwhile, Shell’s Scotford upgrader just outside of Edmonton suffered a mechanical glitch in the middle of November, and part of it will be out of commission until the late December, spokesman Randy Provencal said Tuesday. As a result, its production will be reduced, and production at the company’s Albian oil sands project will be slowed.

The Scotford upgrader feeds Shell’s adjacent refinery, and Mr. Provencal said the company has secured additional feedstock to insure it operates at full steam. Until the upgrader is back on track, the facility will produce a higher percentage of heavy oil.