Suncor Energy remains a top performer thanks to acquisitions and determination
On the afternoon of May 10, a group of sombre-looking oil industry executives joined Alberta Premier Rachel Notley for a televised press conference and update on the wildfires that had been raging for days across northern Alberta and through the heart of the province’s oil sands region.
Steve Williams, President and CEO of Suncor Energy, the largest oil sands producer, stood to the right the premier and was the first executive to speak.
And, he was blunt and to the point when he said: “This has been a crisis like no other. From day one, industry employees, emergency responders and the government have worked together around the clock to help fight the fire and move people out of the region and we will continue to work together.” The wildfire began southwest of Fort McMurray on May 1 and swept through several neighbourhoods in the city, destroying 2,400 homes and forcing the evacuation of 88,000 residents. Insurance claims could hit $9 billion, making it by far the costliest natural disaster in Canadian history.
Oil sands producers across the region had to shut down their operations, causing shortages of gasoline at the pumps in western Canada and driving prices up, but none of the bitumen mines or processing facilities were damaged by the inferno.
The fires continued to spread until mid-June when rains finally helped firefighters bring them under control, but by then, Suncor had begun moving employees back into the region and restoring operations.
In a statement released June 6, the company announced that its base plant U1 upgrading complex had returned to pre-fire production rates and its U2 upgrading complex, as well as its Firebag and MacKay River in-situ facilities, would be back to normal production by the third week of June.
Barclays’ oil industry analyst Paul Cheng has pegged Suncor’s pre-tax losses due to the fires at close to $1 billion, and several Suncor employees, quoted anonymously in a Reuters report, said company executives also estimated the losses at about $1 billion.
The catastrophic wildfires were just one more blow to an industry that had been hammered in 2015 by a near 50 per cent drop in the price of crude oil.
Oil prices are cyclical, of course, and producers can always expect a rebound.
When it comes to public opinion, however, the industry is tilting against some formidable headwinds. Environmentalists, First Nations and pipeline opponents have all demonized oil sands producers and the industry can no longer count on getting a fair shake from the new Liberal government in Ottawa.
Yet, for all that, Suncor remains a Top 40 mining company (ranked 3rd again this year) and at the same time, its diversified assets ensure that it is well positioned to remain viable and profitable over the long term.
“We intend to be the last oil company standing,” Williams said in response to a reporter’s question at the annual general meeting on April 28.
Suncor increased its oil sands production by 11 per cent to 433,600 barrels per day in 2015, and in response to the sharp drop in crude prices, the company reduced its cash operating costs by 18 per cent to $27.85 per barrel, the lowest since 2007.
Williams told shareholders that Suncor expects to raise daily output to 800,000 barrels per day by 2019 through acquisitions and the completion of projects currently under construction.
Suncor’s Millenium and North Steepbank mines are two of the older and larger in the region. The company holds a 50.8 per cent stake in the $13-billion Fort Hills mine, now nearing completion 90km north of Fort McMurray. Production is slated to being in the fourth quarter of 2017 and it will be capable of producing 180,000 barrels per day when it is operating at full capacity.
Fort Hills is one of two major new projects in which Suncor has a significant stake. The other is the offshore Hebron heavy oil field, located 350km southeast of St. John’s, Nfld.
It is believed to contain 700 million barrels of recoverable crude, and production is slated to begin in 2017.
Suncor is one of five partners in the project and holds a 21 per cent interest.
Environmentalists, as well as the various fly-in, fly-out celebrity opponents, detest the vast open-pit mines that have become a visual symbol of all that is wrong with oil sands extraction and processing.
However, 80 per cent of the bitumen is too deep to be mined and must be extracted in-situ through steam-assisted gravity drainage (SAGD) in which parallel horizontal wells are drilled into the deposits, one for steam injection, the other for recovering the oil.
Suncor owns two in-situ operations, MacKay River, which began producing in 2002, and Firebag, which was brought into production in four phases between 2004 and December, 2012.
In the first quarter of 2016, the company achieved record production of 453,000 barrels per day from these two facilities and trimmed its per barrel operating costs to $24.25, a 15 per cent reduction over the same period in 2015.
In late April, the company reported a 2016 first quarter operating loss of $500 million, and this was on top of a $1.38- billion loss in 2015. Nevertheless, Suncor has been on a buying spree this year. The company started 2016 with cash reserves of $3.1 billion and another $6.8 billion available in lines of credit. In addition, the company raised $2.5 billion through the sale of 71.5 million shares at $35 a share.
Suncor has used its cash and cash equivalents to pay down debt and to finance the acquisition of Canadian Oil Sands Ltd., which raised the company’s interest in the Syncrude oil sands development from 12 per cent to 49 per cent. The company then paid $937 million to acquire Houston-based Murphy Oil Corp’s five per cent interest in Syncrude and thereby increased its stake to 54 per cent.
Suncor is seen as primarily an oil sands producer, but it is, in fact, a diversified and integrated company with interests in exploration, development, refining and retailing through its ownership of Petro- Canada and Petro-Can’s nation-wide network of 1,500 service stations.
The company is also focused on being part of a greener and cleaner Canada.
Suncor operates Canada’s largest ethanol plant near Sarnia, Ont., and uses 40 million bushels of corn annually – 20 per cent of the province’s corn crop, to produce ethanol. It is blended with gasoline to produce a cleaner-burning fuel.
As well, Suncor is a partner is six wind power facilities, which are capable of generating enough electricity to power 100,000 Canadian homes.
And, despite all the impassioned criticism of oil sands production and processing, Suncor has reduced its carbon footprint by some 35 per cent over the past decade.
“The plants that are being put in now are comparable with other sources of crude in the world,” says Williams. “We’re very proud of that.”