Suncor Energy Chief Sees Record Year for Cash Flow on Oil Price, Cost Cuts

Suncor Energy Inc. (SU), Canada’s largest oil-sands producer, will report record cash flow this year because of higher oil prices and lower costs, Chief Executive Officer Rick George said.

“We’re going to have a great year, a record year for us” in terms of cash flow, George said in an interview yesterday at Bloomberg’s headquarters in New York. Cash flow has been buoyed by increasing oil prices as well as lower costs following the 2009 takeover of Petro-Canada. The company reported C$5.49 billion ($5.55 billion) in cash flow from operations last year.

Suncor and other companies that produce crude from Canada’s oil sands have benefited from the rising price of crude during the past year. Crude futures on the New York Mercantile Exchange averaged $102.34 a barrel in the second quarter, compared with $78.05 in the same period in 2010.

“Any crude price above $70 a barrel is great for margins,” George said. The company plans “slightly higher” capital expenditure next year after about C$6.7 billion this year.

Oil futures for October delivery fell 43 cents to $86.02 a barrel yesterday on Nymex. Suncor’s break-even point is about C$45 a barrel and the company made money through the last recession, George said.

If Asian demand for gasoline and diesel remains “strong” and car manufacturers keep “selling automobiles and expanding roads in China and India, then demand for oil will stay a pretty robust commodity,” he said.

Oil Sands

Suncor is among companies preparing to exploit the estimated 173 billion barrels of recoverable crude from Alberta’s oil sands, the world’s third-largest reserve.

Suncor is “prepared to go back into Libya” after it wrote down C$514 million for those operations in the second quarter following political turmoil in the North African nation, George said. The company may be able to boost production beyond the previous level of 35,000 barrels a day once it’s able to assess any damage to its operations, he said.

In Syria, where the company produces natural gas that supplies about 10 percent of the country’s use of the fuel, Suncor continues to “monitor” the political situation, George said.

An Aug. 26 environmental report by the U.S. State Department on Keystone XL, a proposed pipeline to connect the oil sands to Gulf Coast refiners, is “one step closer to them actually approving it,” George said. “Keystone is important for both countries.”

Suncor expects a rating upgrade, based on the company’s cash flow and cash assets, George said. The Calgary-based oil producer is currently rated BBB+ by Standard & Poor’s. That’s lower than the A2L rating based on a Bloomberg company rating analysis of debt, default likelihood and price volatility.

Suncor fell 72 cents, or 2.4 percent, to C$29.28 at 4 p.m. in Toronto Stock Exchange trading. The shares, which have 15 buy and seven hold ratings from analysts tracked by Bloomberg, have declined 24 percent this year.

To contact the reporter on this story: Jeremy van Loon in New York at jvanloon@bloomberg.net.

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net.

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