One of the largest stakeholders in the Syncrude oil sands project is Canadian Oil Sands Ltd, which recently reported falling profits due to boosted expenses and high tax levels.
Lower profits and reduced cash flow
Reuters recently reported that the company recorded a 12 percent drop in their fourth quarter profits. According to Mining contributor Ana Komnenic, the company recorded sales volumes of $834 million this year. During the same time in 2012, Canadian Oil Sands boasted $973 million in sales revenues. This caused the organization's shares to fall as well, from 45 cents to 40 per share.
The news source stated that Canadian Oil Sands' incomes were affected by increasing depreciation and depletion expenses, as well as a $30 million rise in foreign exchange losses. Although the business did see some relief with higher selling prices for oil, this was not enough to raise profit levels.
Operating costs compounded the issue, as the company saw $37.60 in expenditures per barrel this year. Komnenic stated that capital expenditures also rose due to a major project at Syncrude, where Canadian Oil Sands completed two initiatives last year.
"We can now look forward to the completion of the remaining two projects and the potential for free cash flow expansion following the decline in capital expenditures after 2014," CEO Ryan Kubik said. "Syncrude operations performed largely as expected in the fourth quarter of 2013 and we remain focused on delivering more consistent production levels in 2014."
Komnenic reported that a tax increase also adversely affected the business last year, as part of incomes established in 2012 were deferred to 2013. The company stated that the rising taxes came as a result of tax pools and a partnership structure that protected much of the incomes generated in 2012.
Overall, the company experienced reduced cash flow, which dropped from $1.6 billion in 2012 to $1.3 billion last year. However, Canadian Oil Sands has high hopes for 2014's levels, as it estimates that operations-based cash flow will reach $1.2 billion and taxes are poised to decrease to $200 million, Komnenic stated. The organization is also planning to settle a $500 million account, which will boost profits further this year.
According to Reuters, the Syncrude project has the capacity to produce up to 350,000 barrels of oil per day. However, production levels have been previously affected by equipment malfunctions creating downtime at the mine.
To prevent similar events, oil sands organizations can employ equipment condition monitoring systems, which oversee the service life and health of key machinery components. With such technology in place, businesses can perform preventive maintenance to correct equipment issues before machines fail.