‘Change in lifestyle’ coming for Suncor as losses continue
Energy giant vows it won’t cut jobs but spending plans will be slashed
CALGARY Canada’s largest integrated energy company posted a surprise $2-billion loss in the fourth quarter and said it will need to cut further into its spending plans to ride out the prolonged slump in oil prices.
“It’s not a crash diet, it’s a change in lifestyle,” Suncor Energy Inc. president and CEO Steve Williams said on an earnings call Thursday as the company further reduced the capital budget it first announced in November by $700 million for the year.
Suncor now plans to spend between $6 billion and $6.5 billion through 2016, compared with an initial budget of between $6.7 billion and $7.3 billion.
Despite the reduction in planned spending, Williams said he doesn’t expect Suncor to lay off more staff.
Suncor planned to cut 1,000 jobs last year, but Williams said the company “significantly overachieved” and ended up cutting 1,700 positions over the course of 2015.
Suncor’s chief financial officer Alister Cowan noted that credit ratings agencies had begun taking industry-wide action on oil producing companies as prices have continued to slide.
“My hope is that they’re able to distinguish between companies that have and continue to demonstrate capital discipline and financial conservatism and those that have not,” Cowan said.
Moody’s Investor Service announced Wednesday that it would cut its ratings on five Canadian oil and gas companies’ debts, including Baytex Energy Ltd., MEG Energy Inc., Paramount Resources Ltd., Bellatrix Exploration Ltd. and Northern Blizzard Inc.
Like Suncor, oilsands producer MEG said Thursday it has cut its capital budget for 2016. MEG trimmed its spending plans by half and now plans to spend $170 million this year compared with a $328 million budget announced in December.
Asked whether Suncor would consider buying MEG or another oilsands company, Williams said: “There are no plans in place for an immediate followup to the Canadian Oil Sands potential deal, but we continue to look.”
Suncor reached an agreement to buy Canadian Oil Sands Ltd. after launching a hostile bid in late 2015. Suncor’s offer is set to close on Friday, valuing the all-share deal at $6.6 billion.
The company also closed its $360-million purchase of an additional 10 per cent interest in the Fort Hills oilsands mining project from French energy giant Total, which gives Suncor a majority interest in Fort Hills.
Fort Hills, Williams said, is now halfway through its construction process and will produce 180,000 barrels of oil per day when it’s complete in late 2017.
Assuming the Canadian Oil Sands deal closes, FirstEnergy Capital Corp. analyst Michael Dunn said in a research note that Suncor’s yearly dividend payout, at 0.29 cents per share each quarter, would amount to $1.8 billion per year. Dunn said he didn’t expect a dividend cut in 2016 “regardless of oil prices,” but noted that Suncor wouldn’t “publicly acknowledge any consideration for a dividend cut in the near term while it is trying to solicit more tendered shares from Canadian Oil Sands investors.”
Williams said that Suncor was committed to protecting its dividend, even though oil prices fell further over the course of the fourth quarter of last year.
Suncor posted a $2-billion net loss in the fourth quarter, compared with net earnings of $87 million in the same quarter a year earlier. Analysts noted $1.6 billion of that loss was from after-tax charges to its assets as a result of the oil price slump. The company also posted a $382-million foreign exchange loss.