Suncor Cuts Spending After Surprise Loss on Writedowns

  • Budget reduced in part by pushing back Firebag maintance
  • C$1.6 billion charge booked on Canada, Libya, offshore assets

Suncor Energy Inc. will cut spending by about 10 percent this year after posting a surprise quarterly loss amid writedowns on the value of Canadian, Libyan and offshore assets.

The oil-sands producer lowered its capital spending plan to between C$6 billion ($4.4 billion) and C$6.5 billion from a November estimate of C$6.7 billion to C$7.3 billion, it said in a statement Wednesday after markets closed. The reduction comes partly from deferring maintenance at its Firebag oil-sands operations to 2017 from this year.

The Canadian oil giant has lowered costs and delayed projects to weather collapsing prices that are making many bitumen mining operations in northern Alberta unprofitable. The 2016 spending cuts come after the company eliminated about 1,700 jobs and slashed its budget last year.

“We have surpassed the reliability and cost reduction targets we established in early 2015,” Chief Executive Officer Steve Williams said in the statement. The company expects to lower costs further even with job reductions “nearing an end,” Williams said during a conference call on Thursday.

Suncor rose as much as 3.9 percent on Thursday, before closing 0.9 percent higher at C$31.82 in Toronto.

Missed Estimates

The company reported a fourth-quarter loss of C$2 billion, or C$1.38 a share, compared with net income of C$84 million, or 6 cents, a year earlier. Excluding one-time items, per-share profit fell short of the 7 Canadian-cent average of 15 analysts’ estimates compiled by Bloomberg.

Suncor reported after-tax impairments of C$1.6 billion, including charges of C$798 million for some offshore assets because of lower crude prices, C$415 million for its Libyan assets and C$290 million for the Joslyn oil-sands venture. Its unrealized foreign exchange loss on U.S. dollar denominated debt was C$382 million.

Even with crude prices near 12-year lows, Suncor is pressing ahead with the C$15.1 billion Fort Hills project, with plans to spend, along with its partners, C$4.5 billion this year to begin production at the end of 2017. The company is also taking advantage of the oil industry downturn to expand through deals including the C$4.2 billion takeover of Canadian Oil Sands Ltd. and the purchase of a bigger stake in a venture with France’s Total SA.

Operating Costs

West Texas Intermediate, the U.S. benchmark, averaged $42.16 in the quarter compared with $73.20 in the year-earlier period. The crude is still hovering above $30 a barrel.

Suncor estimates its oil-sands operating costs per barrel, excluding the Syncrude venture, will be C$27 to C$30 this year, while WTI will average $39. Williams highlighted during Thursday’s conference call that the current oil sands operating costs are less than $20 a barrel in U.S. dollars. Production this year will average between 525,000 and 565,000 barrels a day, the company said.

The Canadian Oil Sands acquisition, pending shareholder approval, will increase Suncor’s stake in the Syncrude venture in northern Alberta to 49 percent, from 12 percent. Currently, the largest owner is Exxon Mobil Corp.-affiliate Imperial Oil Ltd., which holds 25 percent and operates Syncrude.

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