National Post (National Edition)
Suncor’s measured steps boost stock
Up 6% on dividend increase, share buyback
CA LGA RY • Steve Williams, the chief executive of Sun
cor Energy Inc., is making good on a promise to grow the company at a more measured pace, pledging to wring more bitumen out of existing operations and return more cash to shareholders.
Suncor, which this week said it would raise its dividend 54% to 20¢ per common share and repurchase up to $2-billion of additional stock, said Tuesday it would invest in a series of expansions that would squeeze another 100,000 barrels per day of production from extraction facilities as well as its steam-driven Mackay River and Firebag projects during the next three to four years.
Firebag will produce 180,000 barrels per day of bitumen by the end of the year and is currently 15%, or $300-million, under its $2-billion budget, Mr. Williams said.
The project reflects the changing face of Suncor, as the company increasingly moves away from traditional mining techniques and eschews upgrading in favour of delivering growth by harnessing steam to melt seams of bitumen buried too deep to mine.
“Suncor has been focused on these much bigger mining projects,” said Rafi Tahmazian, portfolio manager at Canoe Financial LP. The company is “clearly sending the message that we have a variety of ways to grow [and] until we know how we’re going to do that we’re going to do things with our capital that we think are far better, which is give it back to [shareholders] or buy our stock back.”
Suncor has been under pressure from investors to inject some life into a flagging share price by boosting a dividend many considered meager.
The company says it returned $2.2-billion in cash and dividends to shareholders in 2012. This week’s $2-billion buyback program represents the largest in company history, it said. The moves boosted Suncor shares almost 6% to $31.41.
Suncor, Canada’s No. 1 oil company, has also been shedding assets — including the recent sale of its conventional gas properties for $1-billion — and has put a greater emphasis on corralling costs at its oil sands operations under Mr. Williams.
Cash operating costs per barrel for oil sands operations averaged $34.80 during the first three months of 2013, down from $38.10 a year ago, on higher production volumes, the company said in a release.
“It’s likely you’ ll see that come down farther,” Mr. Williams said following the company’s annual meeting Tuesday, as the company works to improve reliability and rolls out new technologies, including driver-less trucks.
The company has also been sharpening its pencil when it comes to assessing new projects. The 100,000 barrels per day of fresh production from existing assets will cost between $20,000 and $30,000 per flowing barrel — “well below” the price tag of new developments, Suncor chief financial officer Bart Demosky said.
Suncor this year slammed the door on its $11.6-billion Voyageur upgrading plant, a joint venture with France’s Total SA, amid concern that the project would compete headto-head with production from U.S. shale plays.
The company is expected to decide later this year whether to build a new oil sands mine with partners Total and Teck Resources Ltd. Mr. Williams said the project would not include an upgrading component.
“We’re not prepared to invest in that in the future,” Mr. Williams said of the megaplants.
Instead, Suncor is assessing whether to revive plans to add heavy-oil processing equipment called cokers to its refinery in Montreal.
With eastern pipeline plans still subject to regulatory approval, Suncor said it will move up to 40,000 barrels per day of predominantly light oil east for processing in Montreal by rail beginning in early 2014.