Suncor, MEG find feet in lowprice world
Oilsands projects going ahead
• Oil sands producers Suncor Energy Inc. and MEG Energy Corp. operate different types of projects, but both companies said Thursday they could make them work in the current low oil price environment by pushing down costs.
Suncor, Canada’s largest integrated energy company, is moving ahead with two growth projects despite the decline in prices and despite posting lower-than-expected year-end financial results, including an 81% drop in fourthquarter net earnings compared with the year before.
“Today’s lower oil prices should not come as a surprise,” Suncor president and CEO Steve Williams said in a conference call Thursday morning, following the release of the company’s results the night before. “It was the relatively stable prices of the last few years that were the anomaly.”
As oil prices entered a bear market in the final quarter of 2014, Suncor increased its production to 557,600 barrels of oil equivalent per day, and additional investment in its Hebron project off the coast of Newfoundland and its Fort Hills oilsands mine will provide further growth.
At MEG Energy, CEO Bill McCaffrey said production at its Christina Lake in-situ oil sands business in the southern Athabasca region of Alberta is on track to jump 19% this year, to an average of 78,000 to 82,000 barrels a day, despite cutting spending to preserve cash to $305 million for 2015, from $1.2 billion originally planned.
The company reduced operating costs in the quarter to an unprecedented $6.42 a barrel excluding energy required to produce steam, or to $10.13 a barrel including energy costs, down from $8.08 and $11.22, respectively. It expects those costs, excluding energy, to stay in the $8 to $10 a barrel range in 2015.
“We are using this time to challenge the organization to find new ways to further reduce our already low operating, sustaining and maintenance costs, and also to look at how we can grow this business utilizing less capital and continue that growth during periods of low commodity prices,” Mr. McCaffrey said on a conference call.
Similarly, Mr. Williams said spending cuts across the oilsands have led to “deflationary pressures” in the oilfield construction market, and Suncor is looking to take advantage of the fall in prices for work on its $13.5-billion Fort Hills project.
Suncor will spend $1.6 billion on the project this year and there are 3,000 people currently working to build the mine’s facilities.
Fort Hills, a joint-venture with Total E&P Canada Ltd. and Teck Resources Ltd., is designed to produce 180,000 barrels of oil per day and is a key part of Suncor’s growth strategy. At the same time, the company is working to grind down its operating costs. Mr. Williams said the company had been working on managing its costs for years and had managed to drive down its company-wide per barrel operating costs of $30 per barrel, compared with $40 per barrel just a few years ago.
In the oilsands, Suncor’s operating costs averaged $34 per barrel in the fourth quarter of 2014, but Mr. Williams said he was confident the company could bring those costs down further. “We have significant progress left to make this year,” Mr. Williams said.
Mr. McCaffrey said MEG is continuing to look at ways to reduce capital intensity by building extensions to its facilities to boost throughput. MEG’s operating profit rose to $8-million in the quarter, from an operating loss of $33-million in the same period in 2013, on revenue of $615-million, from $350-million, thanks to higher production and higher bitumen prices.
Production rose to 80,349 barrels a day in the quarter, from 41,251 in the same quarter in 2013, while bitumen realizations rose to $50.48 in the quarter, up from $38.22.
MEG benefitted from the startup of Enbridge Inc.’s 600,000 b/d Flanagan South pipeline, which links up with the Seaway Twin pipeline in Cushing, Oklahoma, to the U.S. Gulf Coast.
“Flanagan is the big deal in the market,” said Mr. McCaffrey. But the company, an early adopter of rail transportation for its oil, will continue to use it because it acts as a “relief valve” when pipelines are full and also because it reaches more customers.
In January, Suncor announced that it was cutting 1,000 jobs from its workforce of 14,000 people and chopping $1 billion from its 2015 capital spending plans in response to the drop in oil prices.
The company also announced that it wanted to trim $600 million to $800 million from its operating expenses during the next two years.