Syncrude Canada Ltd.

Syncrude has its origins in an early 1960s decision by the government of Alberta to develop the tar sands in the northern part of the province. The Canadian subsidiaries of four U.S. oil companies—Exxon (then known as Standard Oil of New Jersey), Gulf Oil, Atlantic Richfield and Cities Service—formed a consortium called Syncrude Canada to build a facility to compete with the one developed by Sun Oil’s Great Canadian Oil Sands. It received approval for a production facility in 1969 and began construction four years later.

The project nearly collapsed when Atlantic Richfield, which had committed C$1 billion, dropped out in 1974. It was saved when the Canadian federal government and the provincial governments of Alberta and Ontario stepped in with a combined C$500 million investment, and the other partners upped their commitments to make up the rest. Alberta also agreed to finance a C$500 million pipeline to carry oil from the sands to market. Production began in 1978.

Within a few years other Canadian oil companies joined the consortium, and Ontario withdrew. By the mid-1980s Syncrude was seeking permission for a C$4 billion expansion of its operation, which was intended to increase output from about 130,000 barrels a day to 200,000.

During the 1990s Alberta reduced its holdings (and later withdrew entirely), and the line-up of other minority investors frequently changed. Under the leadership of CEO Eric Newell, the company continued an aggressive expansion program. In 1997 it announced a plan to spend C$3 billion to increase daily output, with an eventual goal of 480,000 barrels.

Two of the minority holdings were converted into investment trusts, and they merged in 2001 to form the Canadian Oil Sands Trust, Syncrude’s second biggest shareholder. (In 2003 it became the largest.) The price of Syncrude’s expansions climbed sharply as a result of cost overruns.

A C$4 billion project approved in 2001 was estimated to cost C$5.6 billion a year later, creating unrest among the consortium’s owners. In 2003 the CEO’s job was taken over by Charles Ruigrok of Imperial Oil, the ExxonMobil subsidiary that was Syncrude’s second largest shareholder. Imperial was later chosen by Syncrude to provide a wide range of management services.

In 2006 the company completed its Stage 3 expansion project known as UE-1, which boosted daily output to 350,000 barrels. The cost of the operation had risen to C$8.4 billion.

Although authorities in Alberta routinely approved Syncrude’s expansion plans, the company clashed with the province on royalty issues. In 2008 Syncrude agreed to pay an additional C$975 million for the period from 2010 to 2015. Yet the following year there were reports that the company stood to gain an extra C$18 billion over the longer term by exercising an option it had negotiated with the province in 1997.