Suncor Energy Inc., Canada’s largest energy company by market value, will buy back as much as C$2 billion ($1.99 billion) of stock and boost its dividend after scrapping plans for the Voyageur oil-sands project.
Suncor will raise its quarterly dividend 54 percent to 20 cents a share, the Calgary-based company said in a statement yesterday. It’s the biggest percentage increase since 2009 and exceeded the 15-cent average dividend estimated by analysts, according to data compiled by Bloomberg.
Chief Executive Officer Steve Williams has been cutting costs by selling natural gas assets and halting the C$11.6 billion Voyageur upgrader. The project, which would have converted heavy bitumen from Alberta’s oil sands into a synthetic light crude for refiners, was abandoned last month amid rising competition from U.S. oil supplies.
“The company has stated loud and clear that it wants to do what’s best for shareholders, which is to return cash to shareholders in a yield-hungry market,” Phil Skolnick, Cassie Chan and Robert McKay, analysts for Canaccord Genuity Corp., wrote in a note to clients today.
Suncor gained 6 percent to C$31.41 at the close in Toronto. The shares have one hold and 24 buy recommendations from analysts.
“We will target a meaningful, sustainable and competitive dividend that will grow with our earnings and cash flow,” Williams said on a conference call today. The company will consider further share buybacks if cash flow exceeds commitments to the dividend and spending, he said.
The company will review the dividend in the fourth quarter each year, Bart Demosky, Suncor’s chief financial officer, said.
Suncor will increase oil-sands output by 100,000 barrels a day above previous targets over the next four years through “low-capital, high-return” projects to boost efficiency and expand operations, Williams said. These include work at the MacKay River plant, mining extraction operations and increasing the Firebag project beyond its 180,000 barrel-a-day design.
The company will decide whether to proceed with the Fort Hills mining project with Total SA and Teck Resources Ltd. later this year, after cost estimates are outlined in September, a decision that depends on achieving returns “significantly” above capital costs, Williams said. Suncor targets returns above 15 percent on its projects, Demosky said.
Suncor’s annual capital spending will be in the range of C$7 billion to C$8 billion until about 2020, Williams said.
The company is in the early stages of evaluating how to develop its “significant unconventional gas” resource in western Canada, following a C$1 billion agreement this month to sell almost all its existing acreage and production from mature fields to Centrica Plc and Qatar Petroleum International, Williams told reporters at Suncor’s annual meeting today.
Suncor may consider joint-venture partners to help develop 8 trillion cubic feet of gas it’s estimated to hold in British Columbia’s Montney formation. Suncor is also looking at liquefying the gas for export by tanker from the Pacific Coast.
The company also announced first-quarter earnings yesterday that beat analysts’ estimates. Excluding C$127 million from canceling Voyageur and a foreign-exchange loss on U.S. dollar-denominated debt, per-share profit was 90 cents, more than the 76-cent average of 18 estimates compiled by Bloomberg.
Earnings from Suncor’s refining operations “crushed expectations,” according to the Canaccord note. The company began building a rail line to bring lower-priced crude to its Montreal refinery. The project is expected to be done by year end with deliveries of 20,000 to 40,000 barrels a day starting in early 2014, Williams said.
Net income fell to C$1.09 billion, or 72 cents a share, from C$1.46 billion, or 93 cents, a year earlier, the company said in a separate statement. Sales rose 2.1 percent to C$9.84 billion as output climbed 6 percent to the equivalent of 596,1000 barrels a day.
Suncor reported its first quarterly loss in 3 1/2 years last year after recording a C$1.49 billion cost from the Voyageur project.
Energy companies, including CVR Energy Inc. and Transocean Ltd., have been pushed by some investors to boost dividends. In Australia, Woodside Petroleum Ltd., that country’s second-largest oil producer, will return about $520 million to investors in dividends after dropping plans to build a liquefied natural gas project estimated to cost $45 billion, the company said earlier this month.