National Post

Weak sights

Suncor, Imperial can’t shake worry,

- Western Business Columnist Claudia Cat taneo Financial Post ccattaneo@nationalpo­st.com Twitter.com/cattaneoou­twest

The modest rebound in oil prices is fuelling hope that the worst of the downturn is over, but Canadian industry stalwarts such

as Imperial Oil Ltd. and Suncor Energy Inc. aren’t taking any chances.

“We are still early in this cycle and the dust has not settled,” Rich Kruger, chairman and CEO of Canada’s oldest oil company, told shareholde­rs at the company’s annual meeting in Calgary Thursday.

Calgary-based Imperial managed to do better than most in the first quarter, when oil prices tanked to the mid-US$40s a barrel. It reported a profit of $421 million, down 55 per cent from $946 million in the same period a year ago, despite receiving for its synthetic crude oil $55.81 a barrel, and for its bitumen $27.40 per barrel, the result of a weaker Canadian dollar and increased heavy/ light differenti­als compared to the same period in 2014.

Canada’s largest refiner, Imperial was saved by its downstream business, which had one of its best quarters to date with a profit of $565 million, up from $488 million, as the company ran “refineries full out, aggressive­ly pursuing additional market sales,” as Kruger said to reporters.

But like the rest of the Canadian oilpatch, the integrated company, majority-owned by ExxonMobil Corp., is aggressive­ly cutting costs, convinced the future is uncertain, or at least, not “business as usual.”

“There is a lot being written about prices and where they will settle out, $50 to $60, somewhere higher, or somewhere lower,” Kruger said. “The truth is, no one knows.

“We could be facing a period with sustained lower prices, so we want to strengthen ourselves, so that if that is the environmen­t that we are operating in, we perform as strongly as we possibly can.”

With completion of the expansion of the Kearl oilsands mining project anticipate­d in mid-year, which will double its capacity to 220,000 barrels a day; and completion of its Nabiye in-situ oilsands project at Cold Lake, which will add another 40,000 barrels a day by the end of the year, Kruger said the heavy spending is winding down.

“It’s the next phase of growth that will really be the question for us in whatever business environmen­t we are facing,” he said.

Kruger said costs are declining thanks to the suspension and cancellati­on of projects, which are leaving people and equipment idle, and have yet to bottom out.

Suncor, Canada’s largest integrated oil company, reported a $341-million loss late Wednesday for the first three months of 2015, down from a net profit of about $1.49 billion during the same quarter last year. Excluding unusual items, Suncor posted $175 million in operating earnings, down from $1.79 billion in the first quarter of 2014.

The company has cut 1,200 jobs this year and is also continuing to squeeze costs. Suncor has reduced its 2015 capital budget by $1 billion and delayed projects, such as the second phase of its MacKay River oilsands developmen­t.

Steve Williams, president and CEO, said operating costs per barrel are already down 20 per cent — to an average of $28.40 a barrel, from $36.60 in the same quarter a year ago.

“We’re working hard to get our costs down and it’s becoming clearer that oilsands are not the marginal supplier,” Williams told reporters after the company’s annual meeting, also held in Calgary.

The company also reduced its oil price assumption­s for 2015. It now expects WTI crude at Cushing to average US$54 a barrel, down from US$59 a barrel anticipate­d in January, and Brent oil to average US$60 a barrel, from US$65 a barrel.

On Thursday, WTI oil for June delivery gained US$1.05, or 1.8 per cent, to close at US$59.63 a barrel on the New York Mercantile Exchange, the highest level since Dec. 11, as oil inventorie­s at the Cushing storage hub declined, showing declining drilling activity is finally resulting in lower production.

The caution reflects widespread worry that today’s conditions will persist longer than in previous price correction­s as the global industry adjusts to the entry of new tight oil supplies that can quickly respond to price signals, as well as the change in strategy by the OPEC cartel to let the market find its own price equilibriu­m.

Whether the worst is over, it’s clear that this oil shock, coming quickly as it did during a massive and unrestrain­ed oilsands expansion and experience­d by such a large number of new oilsands entrants, is teaching lessons about the need to expect the unexpected that will impact judgment calls for a long time to come.

Whether the worst is over, it’s clear that this oil shock, coming quickly as it did during a massive and unrestrain­ed oilsands expansion and experience­d by such a large number of new oilsands entrants, is teaching lessons about the need to expect the unexpected that will impact judgment calls for a long time to come.

 ?? Lary Mac Dougal/
THE CANADIAN PRESS/ ?? “We are still early in this
cycle and the dust has not settled,” Imperial Oil president and CEO Rich Kruger said Thursday.
Lary Mac Dougal/ THE CANADIAN PRESS/ “We are still early in this cycle and the dust has not settled,” Imperial Oil president and CEO Rich Kruger said Thursday.
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