Suncor chief executive Steve Williams said market conditions have changed significantly, challenging the economics of the project.
"That's why we undertook a thorough review of the project to determine whether it met our criteria for long-term, profitable growth," Williams said in a statement.
"This decision is in line with our commitment to capital discipline and our stated plan to allocate capital with priority given to developing higher-return growth projects and accelerating the return of cash to shareholders through dividends and share buybacks."
The Voyageur upgrader was part of a joint venture Suncor inked with Total E&P Canada Ltd. just over two years ago.
Suncor said Wednesday it has acquired the French company's interest in the upgrader for $515 million to gain full control over the partnerships assets.
"Among other things, we will now be able to exclusively utilize the partnership assets to continue driving value from our base business and to support our profitable oil sands growth," Williams said.
A flood of light oil from places like North Dakota has changed the market in recent years and tilted the field against the massive multibillion-dollar upgrader project that would have transformed heavy crude into a similar product.
"It's always disappointing when a project of that scale doesn't go ahead," Alberta Energy Minister Ken Hughes said Wednesday night.
"But this is really not a big surprise to a lot of people because it's been in a state of hold for about four or five years ... the marketplace as we have seen for petroleum products, whether heavy or light, continues to evolve quite dramatically.
Hughes said Alberta currently upgrades about one million barrels of bitumen per day and about 30 per cent of that is expected to come on stream in three or four years.
"We upgrade very close to 60 per cent of the bitumen in Alberta today."
Suncor took a $1.49-billion writedown on Voyageur in the fourth quarter of 2012.
The company said it will take a charge to its first quarter net income and cash flow from operations of approximately $140 million and $180 million respectively as a result of the decision.
Suncor is one of the largest operators in the oilsands, with huge mining operations north of Fort McMurray, a 12 per cent interest in the Syncrude Canada Ltd. mine, a 41 per cent stake in the yet-to-be-developed Fort Hills mine and steam-driven operations at Firebag and Mackay River.
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