October 24, 2012
Spinning off refining and retail downstream assets has been a growing trend for major integrated oil companies, as management and analysts find additional value by separating the upstream from the downstream. Having an integrated operation places an inherent hedge on the business because oil companies drive more profit when crude prices are high, but lose margin in the refining business because high crude prices increase input costs.
A few recent examples are Conoco spinning off Phillips 66 and Marathon Oil divesting Marathon Petroleum, but there are still a few integrated majors successfully adding value by packaging the entire process in-house. ExxonMobil is still enormously profitable using its integrated approach, but Suncor is a company that uses its refining and marketing business more efficiently.
Suncor produces around 70% of its crude in the Canadian oil sands, and unlike most oil produced in Canada and the U.S. mid-continental region that fetches the cheaper WTI crude price, Suncor uses its refining capacity and retail segment to secure Brent crude prices for 96% of production. Suncor plans to increase its oil sands production by the end of the year when its Firebag 4 project commences, creating even more opportunity to mine bitumen and realize international prices for its finished product.
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