Suncor's No Bore

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For oil-sands ogre Suncor (NYSE: SU), 2007 was a mixed bag. Oil prices surged, and the firm lumbered its way toward a significant boost in production capacity, but it made several stumbles along the way.

We've grown used to seeing players like Royal Dutch Shell (NYSE: RDS-A) (NYSE: RDS-B) and Chevron (NYSE: CVX) struggle just to match prior production levels. In their case, a perennial issue is finding new reserves. Suncor, which is endowed with an obscene amount of nontraditional oil resources, suffered a 9% drop in oil sands production for very different reasons.

Because the company faces an extra step of upgrading its bitumen resources into synthetic crude oil, Suncor needs to supersize its infrastructure every time it wants to bump up the bitumen flow. These overhauls are about as easy to pull off without a hitch as the refinery turnarounds executed by the likes of Valero (NYSE: VLO) and Tesoro (NYSE: TSO) -- in other words, pretty freakin' difficult. And just as with the refiners, throughput is reduced while any expansion or maintenance work is under way.

While two major downtime periods were anticipated, unplanned outages also contributed to the year's production dip. Suncor's difficulty in restarting its overhauled refinery in Ontario has been further compounded by a hydrogen supply interruption from Air Products & Chemicals (NYSE: APD).

Yesterday's financial report wasn't all gloomy. Revenue pushed 13% higher for the year, thanks to elevated crude oil prices. Suncor sold a mix of oil products at a blended price of around $74 per barrel, while cash costs ran less than $28 a barrel. This pricing environment contributed to very healthy cash flows and returns on capital employed.

2007 was no barn-burner, but that's the way it goes when a company needs to take one step back to take several steps forward. As long as Suncor keeps upcoming projects like its Voyageur growth strategy moving ahead within a reasonable time frame, there's little reason to worry about this company's future.