Suncor budget shows plans to slash spending
Suncor Energy Inc. plans to spend $1 billion less next year, as it finishes work on two major projects, and continues to drive down its costs.
It announced a budget Thursday that showed the largest integrated oil company in Canada would spend between $4.8 billion and $5.2 billion in 2017, about $1 billion less than it spent in 2016.
Roughly 40 per cent of the budget is earmarked for growth projects such as Suncor’s new oilsands mine called Fort Hills, located in Alberta’s Athabasca region, about 90 kilometres north of Fort McMurray; and for Hebron, located offshore from Newfoundland and Labrador. Both are expected to begin producing at the end of next year.
“Through our 2017 capital spending program, we’ve earmarked the capital required to bring two major growth projects, Fort Hills and Hebron, to completion while at the same time investing in our existing assets to ensure continued safe, reliable and efficient operations,” Suncor president and CEO Steve Wiliams said in a release.
With the two new projects, the company expects to produce an average of between 680,000 and 720,000 barrels of oil per day next year — up from between 610,000 bpd to 625,000 bpd this year.
AltaCorp Capital analyst Nicholas Lupick called the budget a positive sign as there were no surprises in the company’s spending targets.
“Of note, we would highlight that there was minimal information in the way of a corporate update on the company’s progress (and detailed spending) at Fort Hills,” Lupick said in an research note, adding that since the project is still on track to produce by the end of next year, and the company’s spending is down by $1 billion compared with 2016, “we believe that any potential cost overruns are minimal.”
Similarly, BMO Capital Markets analyst Randy Ollenberger said Suncor’s planned capital spending is below analysts’ estimates and highlighted the company’s operating costs, which “continue to trend lower.”
Suncor’s budget shows that cash operating costs per barrel in the oilsands have fallen 37 per cent since 2011 and the company anticipates its costs averaging between $24 and $27 per barrel next year.
At the same time, the company anticipates operating cash costs in the Syncrude Canada Ltd. joint venture will fall to between $32 and $35 per barrel.
Ollenberger also said that cost reductions at Syncrude, a joint venture in which Suncor has increased its ownership through the purchase of Canadian Oil Sands Ltd., are an improvement from $38 per barrel in 2016.
“We will maintain the unwavering focus on cost management, which has helped up to generate strong cash flow throughout these past two years of low oil prices,” Williams said.
Suncor shares were mostly unchanged Thursday. Up to Wednesday’s close, the shares had risen 14.8 per cent this year.