Oilpatch breathes easier over border tax
Suncor CEO says Tillerson an ally
• The head of Canada’s largest oil company thinks Rex Tillerson, Donald Trump’s Secretary of State, is on the side of the Canadian oilpatch.
The possibility of a border adjustment tax that would raise the cost of exporting domestic crude to the U. S. has set off alarm bells in Calgary’s oil towers in recent weeks since the vast majority of Canada’s oil is shipped south across the border.
But Suncor Energy Inc. president and CEO Steve Williams downplayed the risk of a tax Thursday, saying, “I think the probability of a border tax as we’re currently thinking about it is relatively low,” and he praised Tillerson, former ExxonMobil Corp. chief executive, who is now the U. S.'s top diplomat.
“There’s a lot of support for the oil and gas industry. There’s a lot of expertise in the government with Rex Tillerson as Secretary of State. The secretary had not just great experience in the industry but in the Canadian oilsands,” Williams said.
ExxonMobil is the majority owner of Canadian oil major and pioneering oilsands developer Imperial Oil Ltd., and is the second largest shareholder after Suncor in the Syncrude Canada Ltd. venture.
Tillerson understands U. S. refineries rely on Canadian heavy oil imports, Williams said, adding, “I think we’re still a critical part of that mix.”
Williams’ comments were intended to soothe investor fears during Suncor’s fourth quarter earnings call over Canada’s place in a new U. S. energy doctrine that focuses on “unleashing” domestic oil and natural gas production.
Williams also said North American demand for refined oil products had declined in recent years, but the outlook could now improve. “With the new regime in the U. S., that ( trend) may potentially reverse,” he said.
One area in whi c h Trump’s policies could affect the Canadian energy industry, Williams said, was his overall encouragement of the sector in the States.
“The new regime down there is going to probably reduce corporation taxes and is probably going to encour- age business in a way that we haven’t seen for a while,” Williams said, adding both Alberta’s provincial NDP government and Canada’s federal Liberal government “have realized that we have to stay competitive.”
The company also announced it would hike its dividend by 10 per cent, but also said that the anticipated cost of its Fort Hills oilsands mine had risen about 11 per cent to between $16.5 billion and $17 billion.
To offset Fort Hills rising cost, Suncor announced the project’s expected production capacity had also been revised upwards by 7 per cent from 180,000 barrels of oil per day to 194,000 bpd.
“On the surface, it looks like costs are going up more than the nameplate capacity,” GMP FirstEnergy analyst Michael Dunn said. He added that Suncor’s goal is to keep its per- barrel costs steady at $84,000 per barrel.
Teck Resources, a partner in the Fort Hills project, said in a statement it will post an after-tax impairment charge of $164 million in its fourthquarter results due to the increased capital cost.
Fort Hills is expected to begin producing oil by the end of the year, adding significantly to the company’s fast- growing production. The company produced a record 738,000 bpd on average in the fourth quarter, including its share of Syncrude’s output, and now produces more oil than Qatar, which pumped out an average of 650,000 bpd last year.
JP Morgan analyst Phil Gresh said in a research note that Suncor’s results beat earnings and cash flow expectations. The company recorded net earnings of $ 531 million in the fourth quarter, compared with a net loss of $ 2 billion in the same quarter a year earlier.
AltaCorp Capital analyst Nicholas Lupick said in a research note the financial performance “was largely the result of stronger than anticipated production vol- umes from Syncrude” and better profits from Suncor’s downstream refining business.
Suncor has been working to improve performance and drive down costs at Syncrude since it became the majority owner of the project in 2016. “As it turned out, performance improvements materialized more quickly than we had planned for,” Williams said. “I would just say, it’s a little bit premature to expect this level of performance to continue every quarter.”
Suncor and other oilsands companies have focused on cutting costs over the last two years during the prolonged oil price collapse.
MEG Energy Corp. announced Thursday it had driven its operating costs down to $ 8.24 per barrel in the fourth quarter even as the company’s net loss rose to $ 305 million, from a loss of $ 297 million in the same quarter a year earlier. However, net loss for the year shrank to $429 million compared to $1.17 billion in 2015.