The largest expansion in Syncrude’s history is currently underway. Syncrude contributes to the economic well being of Canadians by helping to secure Canada’s energy needs, and through payment of royalties and corporate and payroll taxes as well as the procurement of goods and services.

Syncrude’s SSB production represents about 10 per cent of Canada’s total crude oil production and 13 per cent of domestic consumption. The long life, high quality resource base, stable regulatory regime and competitive taxation environment provide our Joint Venture owners with a sound platform for continued growth. Capital investment and research initiatives are focused on incorporating the best of new technologies that promise lower emissions, lower operating and capital costs per barrel, lower energy consumption per barrel, more effective water use, and the introduction of a higher quality crude oil product. Syncrude is committed to remaining a leader in the profitable, sustainable development of the Athabasca oil sands.

Syncrude’s Stage 3 expansion project will increase our crude oil production capacity by about 45 per cent from current levels to approximately 128 million barrels per year (350,000 barrels per day) of higher quality Syncrude Sweet Premium blend (SSP). Stage 3, with its state-of-the-art technologies for mining and upgrading, a retrofit of automated control systems in the current operation, and new environmental units to reduce emissions, will be fully operational by mid 2006.

Syncrude continues to be a major engine of growth for Alberta and Canada’s economies with over $4.5 billion in total spending during 2004. Approximately 4,200 employees and 1,500 contractors support current operations. A further 6,500 highly skilled contractor personnel were engaged in Stage 3 construction at its peak. This project will have created an estimated 25 million field labour hours of work when completed in 2006.

2004 Economic Indicators

In 2004 Syncrude’s capital program and operating expenditures totaled approximately $4.5 billion. Funding was provided from the Joint Venture owners’ pro-forma revenue of $4.6 billion.

(millions of dollars)	2004	2003	2002	2001
Annual Royalties, Payroll and Municipal taxes ¹	253	223	206	392
Salaries, Wages and Benefits (net of payroll taxes)	444	291	355	323
Purchased Energy	370	343	199	288
Procurement of Goods and Services ²	3,388	3,275	2,297	1,485
Total Contribution	4,455	4,232	3,057	2,488
1 Consists of royalties, payroll taxes, municipal taxes, excise taxes, non-resident withholding taxes and other Crown charges 2 Represents the procurement of goods and services for capital projects and operations. Dollars shown are payments against contracts and commitments against purchase orders.

Since start-up in 1978, Syncrude has made payments in excess of $6.4 billion to governments for royalties, payroll and municipal taxes and other Crown charges. Royalties paid to the Province of Alberta by Syncrude’s owners over this period amounted to over $3.1 billion. In 2004, total payments to governments were $253 million, compared with $223 million in 2003.

Procurement of goods and services from Canadian and international companies was just under $3.4 billion in 2004, about 76 per cent of total expenditures.

The nature of these goods and services are summarized below (with percentages of total spending shown in brackets):

Contracted Services - engineering, labour, material and equipment:
$2,562 million (76%)
Materials and Supplies - materials and supplies, chemicals and catalysts:
$789 million (23%)
Other expenditures - (net of recoveries): $37 million (1%)

Geographic Distribution of Economic Contribution

Overall benefits to the Alberta economy approached $4.1 billion, including more than $3.0 billion in procurement of materials, supplies and contract services. Business volume with Edmonton area companies was approximately $1,430 million, while business with other Alberta firms totaled a further $710 million. Business in other parts of Canada exceeded $192 million, and contracts with international suppliers were valued at $146 million.

Businesses in Syncrude’s immediate trading area, the Wood Buffalo region of Alberta, received $1,243 million in contracts during the year, about 30 per cent of total procurement from Alberta based companies. Syncrude’s business volume with Aboriginal firms in the Wood Buffalo area was more than $107 million.

The majority of Syncrude’s 4,180 employees reside in the Wood Buffalo region. Their support of local businesses, combined with Syncrude’s procurement of goods and services from local and Aboriginal firms, are key elements in sustaining the economic base of the region.
See discussion on Syncrude’s work to sustain the region’s social base on the Highlights of Regional Management Groups page of this website.

Much of Syncrude’s direct spending in Alberta ultimately translates into economic benefits outside the province. Supply chain analysis indicates that the income effect of Syncrude spending is felt 40 per cent in Alberta and 60 per cent in other parts of Canada.

Payment of Royalties Expected to Increase in 2006

Syncrude’s current expansion project was enabled in part by the new oil sands industry fiscal regime that was implemented by the Alberta government in 1996. Under this arrangement, a minimum one per cent royalty is paid until project capital costs have been recovered.

Recent high crude oil prices have served to greatly accelerate the recovery of capital costs by Syncrude’s owners and, as a result, the royalty deferral period is expected to end at approximately the same time Syncrude’s Upgrader expansion project becomes operational in 2006. At that time, royalty payments to the Province of Alberta will return to the level of 25 per cent of deemed net income that was being paid prior to the current expansion.