Bloomberg News

Suncor May Slow Plans to Boost Output If Costs Rise

February 02, 2012

(Corrects year in third paragraph of story published Feb.1.)

Feb. 1 (Bloomberg) -- Suncor Energy Inc., Canada’s largest energy company by market value, may increase oil production more slowly than it had planned if labor and supply costs rise.

“Volume is not the most important piece,” President and designated Chief Executive Officer Steve Williams said during a conference call today. The company will adjust its expansion plans if “quality or costs come under pressure.”

Suncor wants to increase output to 1 million barrels a day by 2020 as it expands oil-sands operations with technology that steams bitumen underground and pumps it to the surface, a process known as steam-assisted gravity drainage. The company’s target of 1 million barrels a day is equivalent to about a third of Canada’s current daily crude production, according to Canada’s National Energy Board.

“They’re being more vocal about being disciplined and focused on costs,” Phil Skolnick, a New York-based analyst at Canaccord, said in an interview today. “It’s a dramatic change from the last cycle when everyone grew for the sake of growing.” Skolnick rates Calgary-based Suncor’s shares “buy” and doesn’t own any.

Alberta, with a population of about 3.7 million and one of the fastest-growing economies in Canada, faces labor shortages, especially in the oil and gas sector, Mario Lefebvre, an economist at the Conference Board of Canada, said in an interview in September. Investment in Alberta’s oil sands is about C$20 billion annually, according to the Canadian Association of Petroleum Producers.

Fourth-Quarter Earnings

Suncor said it benefited from higher oil prices in the fourth quarter, helping net income rise to C$1.43 billion ($1.43 billion), or 91 cents a share, from C$1.29 billion, or 82 cents, a year earlier, according to a statement yesterday.

Oil traded on the New York Mercantile Exchange gained 10 percent in the quarter, averaging $94.06 a barrel compared with $85.24 a year earlier. Suncor’s average daily production was the equivalent of 576,500 barrels of oil a day.

The company’s expansion plans include steam-assisted operations at its Firebag project and a joint venture with Total SA. Suncor will invest C$7.5 billion this year and doesn’t plan to make acquisitions at the moment, outgoing Chief Executive Officer Rick George said during the conference call.

Even with planned expansions by Suncor and competitors, the industry faces no “major concerns” regarding pipeline capacity for another four or five years, said George. “I don’t see crude getting backed up into Alberta,” he said.

Producers in Canada faced a setback earlier this year when U.S. President Barack Obama denied a permit to TransCanada Corp. to build the Keystone XL pipeline to carry oil-sands crude to the Gulf Coast. Enbridge Inc., Canada’s largest oil pipeline owner, is also proposing a pipeline to carry crude from Alberta to British Columbia’s Pacific coast.

Suncor fell 3 cents to C$34.51 at the close in Toronto today. The stock has 18 buy and five hold ratings from analysts.

--Editors: Jasmina Kelemen, Charles Siler

To contact the reporter on this story: Jeremy van Loon in Calgary at

To contact the editor responsible for this story: Susan Warren at

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