CANADIANIZATION OF OILSANDS HAS ALIGNED INTERESTS: SUNCOR CEO
The exodus of foreign firms from Alberta is a ‘good thing,’ explains Claudia Cattaneo.
One unforeseen advantage has emerged from the foreign exodus from the oilsands — there is a new alignment of interests between industry and Canadian governments to help them succeed.
That’s the view of Steve Williams, president and CEO of Suncor Energy Inc., Canada’s largest oil and gas company, who started the Canadian consolidation trend last year by acquiring a control position in competitor Syncrude Canada Ltd. Other major deals followed — including the purchase of Royal Dutch Shell PLC’s oilsands assets by Canadian Natural Resources Ltd., and the purchase of ConocoPhillips’ oilsands assets by Cenovus Energy Inc.
Canadian companies are now in charge of about 70 per cent of oilsands production, and some have become so large they are giants of the Canadian economy. (Among the producers, Suncor has a market value of about $70 billion and Canadian Natural of $50 billion; in the pipeline group, Enbridge Inc. has a market value of about $90 billion and TransCanada Corp. of about $55 billion).
That alignment means governments have to be more responsive about threats to their competitiveness, such as those coming from the United States, Williams said to reporters Thursday in Calgary after addressing the annual meeting of shareholders.
Suncor, Canada’s largest oilsands operator, had just reported a better-than-expected $1.3 billion profit for the first quarter, compared to $257 million in the same period a year ago, on higher crude prices, lower costs, and asset sales, reinforcing that the sector has rebounded from the oil shock and can make money even at US$50-a-barrel oil.
The Canadianization of the oilsands “from where I stand it’s a good thing,” Williams said. “It aligns the Canadian interests. Now what we have (is) a Canadian resource, increasingly owned by Canadian corporations, working with Canadian provincial and federal governments to try and get the proper access with absolutely the right environmental standards to market. So you get a bit of a Canadian brand on that and I like that, (but there is a need to look) after the Canadian interests, because this is a very competitive world and we have to do some of that.”
Williams also likes that Canadian companies made “relatively good” deals, and that consolidation among a handful of companies for which production from the deposits is a core business means better supply chains, better connectivity, and more motivation to work co-operatively to make the business more efficient.
But with the administration of Donald Trump proposing major corporate tax cuts, rolling back regulations and threatening to pull out of NAFTA, the sector risks losing access to capital, he said, a message Suncor has been taking to governments.
“We compete internationally for our capital and that gets more difficult if there are other jurisdictions that are either more supportive around either regulation or taxation,” Williams said. “So, it’s really important that both at the provincial and federal level we retain our competitiveness.”
Even Canadian climate change plans, which Suncor supports, imply that Canada needs to be flexible to protect its competitive position, he said. Alberta’s carbon tax costs Suncor about 60 cents a barrel, Williams told shareholders.
While Trump’s tough talk has resulted in an overhang on Canadian stock prices, Williams doubts the U.S. administration will do anything to harm Canadian oil and gas.
Even with the surge in U.S. light oil supplies, refineries in the Gulf of Mexico still need heavy oil, which has been tougher to get due to declining production in Mexico and Venezuela.
“I am optimistic the right things will happen,” Williams said. “I think there will be some positioning, some posturing. Maybe the best indicator we have got is that after all of the discussion, one of the very first things that president Trump did was approve the Presidential Permit for Keystone XL” pipeline.
The company said its earnings were helped by an unrealized after-tax foreign exchange gain of $103 million on the revaluation of U.S. dollar denominated debt and after-tax gains of $437 million on the sale of its lubricants business and interest in the Cedar Point wind facility in Ontario. Its operating profit, which excludes one-time items, was $812 million, compared to a loss of $500 million, a year ago.
Suncor’s operating costs to produce a barrel of oil dropped to $22.45 from $24.50 during the quarter — or about US$17 a barrel — and the plan is to push those below $20 a barrel.
“We have permanently adjusted them down,” Williams shareholders. The CEO expects the international exodus to continue, as companies like BP PLC, Chevron Corp. and Total SA evaluate their positions, though Suncor doesn’t need to make another deal and its priority is to return cash to shareholders.