Capital Program
| (millions of dollars) | 2004 | 2003 | 2002 | 2001 |
| Capital Expenditures - total | 2,613 | 2,435 | 1,857 | 828 |
| Sustaining 1 | 250 | 193 | 190 | 183 |
| Growth/Major 2 | 2,363 | 2,242 | 1,667 | 645 |
| Development expense 3 | 136 | 118 | 89 | 82 |
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1 Sustaining capital expenditures are for capital required to maintain the production capacity of the current operation. 2 Growth/major capital expenditures are for investments in production growth and for various operating efficiency improvements. 3 Development expense is the cost of research and engineering development activities related to sustaining capital and major capital projects. |
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Total capital program expenditures including growth/major capital, sustaining capital and development expense reached a new high of $2,749 million in 2004, up from $2,553 million in 2003.
Growth/major capital expenditures, which are focused on production growth and cost reduction initiatives, reached $2,363 million in 2004, up from $2,242 million in 2003. Spending on the Stage 3 expansion was $1,954 during 2004. Most of the Stage 3 spending was for the approximately 45 per cent capacity expansion to Syncrude’s upgrading and processing facilities at Mildred Lake, which reached 75 per cent completion by year-end.
The Upgrader Expansion project includes new froth treatment and diluent recovery units, adds a third fluid coker, a fourth distillate hydro-processor, a fourth hydrogen plant, a sour water treater, and supporting utilities. The project also includes modernization of existing process control systems. The new process units will result in the production of a more highly upgraded, superior quality Syncrude Sweet Premium (SSP) product. This new product will help keep Syncrude at the forefront of refinery processing requirements.
Other major project expenditures in 2004 included the South West Quadrant Mine Replacement project at $374 million. This project, which reached 47 per cent completion in 2004, will replace bitumen production from the Base mine at Mildred Lake and provide a stable long-term source of bitumen for the new upgrading capacity added by Stage 3.
Another major project, the Syncrude Emission Reduction project, was launched in 2004 with $19 million being spent on preliminary design/engineering.
Sustaining capital expenditures required to maintain existing plant production levels were $250 million in 2004, compared to $193 million in 2003. The increase in 2004 spending centered on improved reliability and efficiency enhancement initiatives. Sustaining capital has averaged $2.27 per barrel over the last five years.
Development expense associated with capital projects was $136 million in 2004, up from $118 million in 2003 due to the significant increase in base plant and growth/major projects activity. Development expense is expected to peak in 2005 as the Upgrader expansion construction is completed.
Syncrude Joint Venture Owners’ reinvestment rate, a function of operating cash flow and total capital program spending, was 95 per cent in 2004, down from 155 per cent in 2003. Over the last four years strong cash flow from operations funded 98 per cent of the $8.1 billion in cumulative capital program expenditures, which is equivalent to a reinvestment rate of 103 per cent.
Stakeholder Benefits of Capital Program 
A major benefit of the Upgrader Expansion project will be substantially lower sulphur dioxide emissions from the Mildred Lake plant, a change that will further improve regional air quality. Starting in 2006, sulphur dioxide emissions will decrease by about 25 per cent from current levels despite a 45 per cent increase in plant capacity.
The Syncrude Emission Reduction Project will further reduce sulphur dioxide emissions, to 50 per cent of 2006 levels, and is targeted for completion and start-up in 2009.
The higher quality of the Syncrude Sweet Premium product will enable downstream refineries to more easily produce cleaner burning, more environmentally friendly petroleum products that are in keeping with societal demand. Syncrude continuously engages in consultation and surveys with refinery customers to stay at the forefront of market requirements.
From an economic perspective, Syncrude’s strategic decision to upgrade all of its
product output to a premium quality at its Mildred Lake site generates higher returns
for investors and retains highly skilled jobs in Canada, thereby making Canada’s oil
sands an attractive location for future investment.
Also see discussion on Economic Contribution.
Return on Capital Employed (ROCE)
Pro-forma return on total capital employed, which includes $6.2 billion of capital investment in facilities that have not yet commenced operations, averaged 20.1 per cent in 2004 compared with 14.8 per cent in 2003. The increase was due to higher revenues, partially offset by the effect of $1.9 billion of capital additions to production assets not yet placed in service.
Actions taken by Syncrude in response to stakeholder concerns raised during our stakeholder engagement processes are noted throughout this report; these actions are indicated by the symbol.