Water woes cut into production at Suncor's big Fort Hills mine
Water is flowing into the most valuable part of Suncor Energy Inc.'s massive 194,000-barrels-per-day Fort Hills oilsands mine, adding a fresh problem for a megaproject that has struggled to reach its full potential.
Calgary-based Suncor confirmed on an earnings call on July 29 when an analyst asked about the problem that it is dealing with water issues at Fort Hills, a $17-billion oilsands project completed in 2018.
“Water management in oilsands is a very common issue. Any time you have soft-rock mining, you are getting some egress of water from some ground sources and such into the mine. We have procedures to be able to manage it, some events are more challenging than others,” Suncor chief executive Mark Little said on the call.
“Is water an issue? Yes, it always is and we manage it accordingly,” he said, adding that he “doesn't expect this to be a fundamental issue.”
Vancouver-based Teck Resources Ltd., which owns 21.3 per cent of the project, disclosed the water issues during its second-quarter earnings call on July 27.
“There has been a slower-thanplanned ramp-up of contract overburden stripping as well as challenges around managing groundwater inflow from deep subsurface aquifers,” Teck chief executive Don Lindsay said on the call. Overburden is the soil and subsoil above the bedrock and ore.
“They said it was routine, but I haven't heard of this issue before,” said Phil Skolnick, a New Yorkbased analyst with Eight Capital. “It's interesting that Teck brought it up. Teck is a mining company and the fact that they brought it up sounds like it's more than just routine.”
Skolnick added that Teck's decision to proactively disclose the problem while Suncor waited for a question from analysts “creates skepticism” about Suncor's description of the issue and leaves questions hovering over the stock.
The company declined to answer Financial Post questions about how many mining trucks it has pulled out of the affected area or how much water is in the mine.
Suncor shares have traded down roughly four per cent to $24.76 per share since the July call. The S&P/ TSX Capped Energy Index is down by a little less than two per cent over the same time period.
JP Morgan analyst Phil Gresh in a research note said the south side of the mine, where the company is dealing with “slope instability” issues, represents 60 per cent of the project's asset base.
“While management is confident in the 2022 plan for Fort Hills, we think that investors may view this as a `show me' situation,” he said.
Suncor, Canada's largest integrated oil company, announced in a July 28 press release that work was needed to stabilize the slope of the barrier between the northern border of the Syncrude Canada Ltd. Aurora oilsands mine, which Suncor operates, and the southern border of the Fort Hills mine.
As the company moves overburden to solve the problem, the company revised its full-year production guidance for the project to between 45,000 barrels per day and 55,000 bpd, down from between 65,000 bpd and 85,000 bpd.
Suncor also increased its estimated operating costs for Fort Hills by 46 per cent to between $37 per barrel and $42 per barrel, from a previous target of between $25 per barrel and $29 per barrel.
The company said it would be able to ramp up to full production at Fort Hills in early 2022 — a disappointing timeline for investors.