The $128 million, or 13 per cent, decrease in first quarter 2013 sales, net of crude oil purchases and transportation expense, primarily reflects lower sales volumes relative to the 2012 first quarter.
First quarter 2013 sales volumes were impacted by unplanned outages in extraction and hydrotreating units, and averaged 95,700 barrels per day, down from 108,100 barrels per day in the 2012 first quarter.
The first quarter 2013 realized selling price decreased $0.96 per barrel, reflecting a U.S. $8.67 per barrel decrease in WTI oil prices largely offset by a $6.77 per barrel improvement in the weighted-average SCO differential to WTI and a slightly weaker Canadian dollar.
Both WTI and the SCO differential to WTI reflect supply/demand fundamentals for inland North American light crude oil. Increasing North American production of light crude oil, and refinery modifications that enable processing of heavier crude oils, can push light crude sales, including SCO, to more distant refineries, thereby increasing transportation costs and exposing COS' product to supply/demand factors in different markets. A number of pipelines in both Canada and the United States are at, or near, capacity and any pipeline apportionments can exacerbate this situation by restricting the ability of SCO and other crude oils to reach preferred markets. However, strong demand from customers and increases in rail shipments of inland crude to coastal refineries can offset these forces. These supply and demand dynamics create price volatility that is likely to persist for several years until additional pipeline or other delivery capacity is available to deliver crude oil from Western Canada to Cushing, Oklahoma, the U.S. Gulf Coast, or the Canadian East or West Coasts.
Certain of these same fundamentals are also impacting the prices of Canadian heavy oil, such as Western Canadian Select ("WCS"), which is the heavy oil reference price used as a starting point to calculate Syncrude Crown royalties. WCS is priced at a discount to WTI, and this discount increased in the first quarter of 2013 relative to the comparative 2012 quarter, contributing to lower Crown royalties.
The Corporation purchases crude oil from third parties to fulfill sales commitments with customers when there are shortfalls in Syncrude's production and to facilitate certain transportation arrangements. Sales include the sale of purchased crude oil while the cost of these purchases is included in crude oil purchases and transportation expense. Crude oil purchases were higher in the 2013 first quarter relative to the 2012 first quarter, reflecting additional purchased volumes to support unanticipated production shortfalls and to facilitate certain transportation arrangements.
Operating Expenses
The following table breaks down operating expenses into their major components:
Three Months Ended March 31 2013 2012 $millions $ per bbl $millions $ per bbl----------------------------------------------------------------------------Production and maintenance (1) $ 282 $ 32.70 $ 255 $ 25.94Natural gas and diesel purchases (2) 44 5.12 36 3.69Pension and incentive compensation 21 2.50 19 1.93Other(3) 8 0.88 10 1.02----------------------------------------------------------------------------Total operating expenses $ 355 $ 41.20 $ 320 $ 32.58--------------------------------------------------------------------------------------------------------------------------------------------------------(1) Includes non-major turnaround costs. Major turnaround costs are capitalized as property, plant and equipment.(2) Includes costs to purchase natural gas used to produce energy and hydrogen and diesel consumed as fuel.(3) Includes fees for management services provided by Imperial Oil Resources, insurance premiums, and greenhouse gas emissions levies.
