We hold a 7.23% participating interest in Syncrude Canada Ltd. (Syncrude). This joint venture was established in 1975 to mine shallow oil sands deposits using open-pit mining methods, extract the bitumen from the oil sands and upgrade the bitumen to produce a high-quality, light (32° API), sweet, synthetic crude oil.

The Syncrude operation exploits a portion of the Athabasca oil sands deposit that contains bitumen in the unconsolidated sands of the McMurray formation. Ore bodies are buried beneath 50 to 150 feet of overburden, have bitumen grades ranging from 4 to 14 percent by weight and ore bearing sand thickness of 100 to 160 feet.

Location
Syncrude’s operations are on eight leases (10, 12, 17, 22, 29, 30, 31, and 34) covering 248,300 hectares, 40 km north of Fort McMurray in northeast Alberta. Syncrude mines oil sands at three mines:

1. Base Mine,
2. North Mine, and
3. Aurora North Mine.

These locations are readily accessible by public road. Trucks and shovels are used to collect the oil sands in the open pit mines. The oil sands are transported for processing using a hydro-transport system.

Extraction Process
The extraction facilities, which separate bitumen from oil sands, are capable of processing more than 270 million tons of oil sands per year and about 160 mmbbls of bitumen per year. To extract bitumen, the oil sands are mixed with water to form a slurry. Air and chemicals are added to separate bitumen from the sand grains. The process at the Base Mine uses hot water, steam, and caustic soda to create a slurry, while at the North Mine and the Aurora North Mine, the oil sands are mixed with warm water to produce a slurry.

The extracted bitumen is fed into a vacuum distillation tower and two cokers for primary upgrading. The resulting products are then separated into naphtha, light gas oil, and heavy gas-oil streams. These streams are hydrotreated to remove sulphur and nitrogen impurities to form light, sweet, synthetic crude oil. Sulphur and coke, which are by-products of the process, are stockpiled for possible future sale.

Electricity is provided to Syncrude from two generating plants: a 270 MW plant and an 80 MW plant. Both plants are at Syncrude and owned by the Syncrude participants.

 

Final Product
In 2007, Syncrude’s production of marketable synthetic crude oil was about 305,000 bbls/d. Nexen’s share was 20,000 bbls/d before royalties (19,000 bbls/d after royalties).

The high quality of Syncrude’s synthetic crude oil typically means it is sold at prices approximating WTI. In 2007, about 35% of the synthetic crude oil was sold to Edmonton area refineries, and the remaining 65% was sold to refineries in Eastern Canada and the mid-Western United States.

Since operations started in 1978, Syncrude has shipped more than 1.8 billion barrels of synthetic crude oil to Edmonton, Alberta, by Alberta Oil Sands Pipeline Ltd. The pipeline was expanded in 2004 to accommodate increased Syncrude production.

Royalties
Syncrude pays a royalty to the Alberta government. As of January 2002, this royalty was equal to the greater of 1% of gross revenue or 25% of net profit after deducting new capital expenditures. In connection with the government’s review of Alberta royalty rates in 2007, the Syncrude owners entered into negotiations at the end of 2007 at the request of the government that may result in revised royalty terms. These negotiations may result in higher royalties paid to the Alberta government in the future.

Capital Investment & Expansions
At December 31, 2007, our total investment in the property, plant and equipment, including surface mining facilities, transportation equipment, and upgrading facilities, was approximately $1.3 billion. Based on development plans, our share of future expansion and equipment replacement costs over the next 35 years is expected to be more than $2.8 billion.

In 1999, the AEUB approved an increase in Syncrude’s production capacity to 465,700 bbls/d. At the end of 2001, Syncrude had increased its synthetic crude oil capacity to 246,500 bbls/d with the development of the Aurora North Mine, which involved extending mining operations to a new location about 25 miles north of the main Syncrude site. The next expansion of Syncrude came on stream in 2006, increasing capacity to 360,000 bbls/d with the completion of the Stage 3 project.

For more information, please see our statistical supplement or the separate Syncrude website.