National Post (National Edition)
Suncor Energy to lay off up to 2,000 workers
Will trim 15% of its force over next 18 months
CALGARY • Suncor Energy Inc., which was until recently Canada's most valuable oil and gas company, plans to lay off up to 15 per cent of its staff, or 2,000 of its workforce, in a bid to reduce costs.
The company hosted an employee conference call on Friday, where president and chief executive Mark Little said the company is looking across the organization to reduce five per cent of its staff in the next six months. Altogether, the company will cut up to 15 per cent of its workforce over the next 18 months.
Calgary-based oilsands giant Suncor employed 12,889 people at the end of 2019, which would suggest 644 people will be laid off in the next six months and a total of 1,933 could lose their jobs over the next year-anda-half.
Company spokesperson Sneh Seetal said the company is not looking at specific business units to make the cuts, but is looking across the organization. The cuts would also fit into a larger initiative to reduce costs, digitize work process and modernize the company, which the company has labelled as “Suncor 4.0.”
“A few years ago, we began to talk about how we fundamentally change how we work,” Seetal said. “We always anticipated that this transformation would result in a smaller workforce over time.”
She said the collapse in oil prices this year and the continued pressure on the business from the COVID-19 pandemic had accelerated the company's need to reduce costs. The energy sector lost 23,600 jobs in the second quarter, according to Statistics Canada.
Global oil prices fell 4 per cent Friday, with the West Texas Intermediate benchmark tumbling US$1.62 per barrel to US$37.10 per barrel on Friday, on concerns of shrinking oil demand amid rising coronavirus numbers that now include U.S. President Donald Trump and wife Melania.
When markets opened Friday, Suncor shares traded down with the tumble in global oil prices, but rebounded on news of the layoffs to rise 2.45 per cent to $15.88 on the Toronto Stock Exchange mid-day. But the company is still trading at levels not seen in 17 years.
This week, Suncor's share price plumbed new depths last seen in 2003. As a result, Suncor, which at one point was the second most valuable company on the TSX behind Royal Bank of Canada, is no longer the most valuable oil producer in Canada. The integrated oil producer's market cap of w.2 billion was eclipsed this week by Canadian Natural Resources Ltd., which now boasts a market cap of $24.6 billion, according to Y-charts.
“Suncor shares have underperformed peers and crude oil prices in 2020 following the 55 per cent cut to its dividend and third quarter operating challenges in its oilsands business,” BMO Capital Markets analyst Randy Ollenberger said in an Oct. 1 research note.
Ollenberger said he believed the shares offer “underappreciated value” and could recover as the company's refining business improves.
The company has integrated operations with refineries in Alberta, Ontario, Quebec and Colorado.
Refineries have been hit hard during the coronavirus outbreak as commuters have stayed home and air travel has been severely curtailed since March.
In addition, Suncor is one of the higher cost oilsands mining companies and the cuts announced Friday should help bring the company's operating costs per barrel into line, said New York-based Eight Capital analyst Phil Skolnick.
“How permanent are those cuts? If oil were to come back to $55 or $50, and we're out of the pandemic, then how much of those come back?” Skolnick said, adding that the market and investors are looking for permanent cost reductions.
He said it's not clear yet how a 15 per cent staff reduction would drive down break-even operating costs.
RBC Capital Market analysts expect Suncor to re-establish momentum on several fronts in the quarters ahead, and maintained its outperform recommendation on the company stock with a one-year price target of $25 per share.
“Suncor has no plans to leap into renewables on a grandscale,' RBC analyst Greg Pardy said in a note, after hosting a virtual road show with Suncor CEO Little for European investors. “Rather, the company is likely to emerge as a niche player, targeting ESG (environmental, social and governance) investments which generate at least mid-teen returns. These are likely to include biofuels, hydrogen, C02 sequestration, and select wind projects.”
Alberta Premier Jason Kenney said the announcement from Suncor was “terrible” and reflected the crisis in the energy sector, adding that 2,000 jobs losses in Alberta would be the equivalent on a population-adjusted basis to 8,000 job losses from a single company in Ontario.
But he noted that current underinvestment in the oil industry would set up an improved energy market in the coming years.
“We will get through this. Global demand will recover and there will be a supply shortage, as almost everyone projects, as we move into 2021 and 2022,” Kenney said, adding that he was concerned that job losses in the oil industry would lead to a permanently smaller workforce.
“We want to work with them to ensure the workforce stays in tact, as much as possible,” Kenney said.
WE ALWAYS ANTICIPATED ... A SMALLER WORKFORCE OVER TIME.