Suncor, Cenovus Push for Higher Output From Oil Sands After Prices Climb
Suncor, Canada’s largest oil company, wants oil to account for as much as 90 percent of output and oil sands to generate 75 percent of cash flow, Chief Executive Officer Rick George said on a conference call today, without specifying a timeframe. The company got 53 percent of cash flow in the second quarter from oil-sands operations, according to its earnings statement today.
The Canadian companies are seeking to expand output from Alberta’s oil sands, the world’s biggest crude reserves outside Saudi Arabia, as crude prices climb 26 percent from last year. Cenovus, the oil company spun off last year from Encana Corp., today reiterated a plan to boost oil-sands production fivefold to 300,000 barrels a day by 2019.
“In the price environment we’re in right now, all of their projects look attractive,” said Michael Dunn, an analyst with FirstEnergy Capital Corp. in Calgary.
Canadian oil sands are poised to be the top source of crude imports to the U.S. this year, according to a May report by IHS- Cambridge Energy Research Associates.
Suncor, based in Calgary, posted a second-quarter profit today of C$480 million ($464 million), or 31 cents per share, compared with a loss of C$51 million, or 6 cents, a year earlier. The company was able to sell its oil-sands output for an average of $69.79 a barrel, 18 percent more than the same period last year.
“The improvement is driven by higher product and commodities prices,” said Lanny Pendill, an analyst with Edward Jones & Co. in St. Louis. Boosting oil-sands production has “driven down their production costs.”
Production of bitumen, a tar-like petroleum, from oil sands will more than double in Alberta to 1.2 billion barrels a year by 2019, according to the Energy Resources Conservation Board, an independent agency of the provincial government. Output rose 14 percent to 1.49 million barrels a day last year, according to the board’s annual report.
Environmentalists oppose oil-sands production because of the amount of energy and water needed to turn it into synthetic crude oil. About $200 billion has been committed for oil-sands projects by companies include BP Plc, Exxon Mobil Corp. and Royal Dutch Shell Plc, according to Ceres, a coalition of investors, environmental and public interest groups.
Alberta held 169.9 billion barrels of bitumen in oil sands at the end of last year, according to the board.
Suncor and Cenovus have “wonderful oil-sands reserves” for investors, said Charles Maxwell, an analyst at Weeden & Co. in Greenwich, Connecticut.
Cenovus, based in Calgary, expects about 75 percent of its cash flow to come from oil in three years’ time, up from about 60 percent this year, Chief Executive Officer Brian Ferguson said in a phone interview today.
“Oil sands is the dominant growth component for the company, both in terms of production and also reserves,” he said.
Suncor’s total production in the quarter jumped 89 percent from a year ago to the equivalent of 633,900 barrels of oil a day, reflecting the company’s takeover of Petro-Canada. Oil- sands output fell 1.8 percent to 295,500 barrels a day, due to planned maintenance at one of two upgraders in May and June.
Suncor rose 87 cents, or 2.6 percent, to C$33.91 at 4:26 p.m. on the Toronto Stock Exchange. The company has 20 buy and four hold ratings from analysts.
Cenovus had net income of C$172 million, or 23 cents a share, in the second quarter. The company fell C$1.43, or 4.8 percent, to C$28.54 in Toronto. The shares have gained 7.7 percent this year.
“Their downstream profit was lower than expected, that was the surprise in the quarter,” Dunn said. Cenovus’s downstream business includes its U.S. refining venture with ConocoPhillips.
Imperial Oil Ltd., which is 70 percent-owned by Exxon Mobil, is spending about C$8 billion to build an oil-sands mine and processing plant. The Kearl project is expected to produce about 110,000 barrels of bitumen a day starting by 2012.
Production of bitumen from Imperial’s Cold Lake project rose to 140,000 barrels a day in the second quarter from 139,000 a year earlier, the company said in a statement. The Calgary- based company’s share of production from the Syncrude Canada Ltd. oil-sands venture rose to 59 percent to 81,000 barrels a day. Imperial owns 25 percent of Syncrude.
Imperial said second-quarter net income more than doubled to C$517 million, or 60 cents a share, from C$209 million, or 25 cents, a year earlier.