Suncor Slows Some More

By Toby Shute | More Articles
January 20, 2009 | Comments (2)

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Back in October, I argued that Suncor Energy (NYSE: SU ) could be slowed in its oil sands expansion, but it couldn't be stopped.

Well, with today's earnings release, the pace of the firm's Voyageur expansion has now slowed to the point where you'd need a stop-motion camera to perceive the progress. Capital spending for 2009 has been cut in half from October's $6 billion level, and construction at both Voyaguer and Firebag is being halted.

As I've documented, all sorts of oil-sands plans are getting canned. From Petro-Canada (NYSE: PCZ ) and Teck Cominco's (NYSE: TCK ) Fort Hills project to Nexen's (NYSE: NXY ) Long Lake venture and Statoil Hydro's (NYSE: STO ) aborted upgrader, no one's come out of this unscathed. Still, you have to be disappointed as a Suncor shareholder, given the firm's preeminent position in the space.

2008 was no picnic for Suncor. Daily oil sands production came in lower, while cash costs crept higher, leading to a big dropoff in return on capital. Some maintenance was planned, but there was unplanned downtime as well, caused by such hiccups as a facility fire in November. Also, after commodity prices went into freefall, Suncor was not only hurt in terms of revenue, but was also left holding the bag on higher-priced inventories.

As we look to 2009, there's at least one bright spot. Cash costs ought to recede, thanks to lower natural gas prices and fewer third-party bitumen purchases. Production is also ramping to the 300,000-barrel-per-day level, which will spread those costs over a greater number of barrels. Of course, it's hard to be enthusiastic when Suncor will be earning so much less on its barrels sold. But given the firm's cost guidance, the oil sands operations still appear to be economical, even at today's oil prices.

Suncor is rated a firm four stars by the legions of Motley Fool CAPS participants. What's your outlook for the company in 2009? Weigh in right here.

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Fool contributor Toby Shute is active in CAPS under the name TMFSmashy, but he doesn't have a position in any company mentioned. The Motley Fool has a disclosure policy.

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Report this Comment On January 21, 2009, at 4:50 AM, dividendgrowth wrote:

Suncor is absolutely right about cutting back. When oil goes down to 25, its very survival will be threatened.
Recent polls show that retail investors are overwhelmingly bullish about oil price. I say take the opposite position.
Report this Comment On January 23, 2009, at 10:42 AM, cubanstockpicker wrote:

"As we look to 2009, there's at least one bright spot. Cash costs ought to recede, thanks to lower natural gas prices and fewer third-party bitumen purchases. Production is also ramping to the 300,000-barrel-per-day level, which will spread those costs over a greater number of barrels. Of course, it's hard to be enthusiastic when Suncor will be earning so much less on its barrels sold. But given the firm's cost guidance, the oil sands operations still appear to be economical, even at today's oil prices."
How can 300,000 barrels per day being sold at these prices be any good news? It costs them 40-60 a barrel out of oil sands, how is producing more going to be any better?
If Apple spent 300.00 to make an Iphone and sold it for 250.00, how will it make money? By making more iphones?
The best that they canb do is shut down their plant and just repair everything that needs repairing and wait for oil to go up in price and start selling at that point, otherwise their reserves of oil will keep dwindling at bigger losses.

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