Suncor Can't Be Stopped

Oil sands sultan Suncor Energy (NYSE: SU  ) reported its quarterly results today, and they were decidedly mixed. Oil sands production was up a bit less than 3%, and price realizations were stellar. The latter effect was largely responsible for the 40% jump in cash flow from operations and the 28% lift in per-share earnings.

Operationally, things didn't run so smoothly, with unplanned maintenance work in both the company's extraction and upgrading operations. There were also hydrogen-facility hiccups. These slip-ups have forced Suncor to reduce full-year production guidance modestly. That reduction, in turn, drives up the per-barrel operating cost forecast.

Don't take this smattering of small snafus as a sign that Suncor is subpar. Oil sands mining and upgrading has more in common with the operations of a Freeport-McMoRan (NYSE: FCX  ) or a Barrick Gold (NYSE: ABX  ) than those of a ConocoPhillips (NYSE: COP  ) . If you follow the miners, you know that nothing ever goes quite as planned.

Probably more notable than any element of these quarterly results is last week's announcement that Suncor is slashing its 2009 capital budget. Such moves began with Chesapeake Energy's (NYSE: CHK  ) cautionary cut -- and other E&P companies like Petrohawk Energy (NYSE: HK  ) have also pared back. Suncor will spend $6 billion in 2009, which is down 20% from this year's budget and represents a reduction by at least one third from the original plan.

I questioned the viability of Petro-Canada and Teck Cominco's (NYSE: TCK  ) Fort Hills project back in September. It now looks even less likely that the project's upgrader will be built any time soon. In contrast, Suncor's massive Voyageur project has had its completion date pushed back one year. About one quarter of the roughly $20 billion budget has been spent. This bad boy will get built.

In short, Suncor can be slowed, but it can't be stopped.

Fool contributor Toby Shute doesn't have a position in any company mentioned. Chesapeake is an Inside Value selection. The Motley Fool has a disclosure policy.


Read/Post Comments (1) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 06, 2008, at 8:45 AM, fransgeraedts wrote:

    I have a question. What kind of companies sell those capital goods that the oil sand companies use?

    Thanks,

    fransgeraedts

Add your comment.

DocumentId: 765389, ~/Articles/ArticleHandler.aspx, 7/25/2014 9:27:11 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

TREND TRACKER: Get Rich When the Web Goes Dark

It's time to say "goodbye" to your Internet! One bleeding-edge technology is about to put the World Wide Web to bed. And if you act right away, it could make you wildly rich. Experts are calling it the single largest business opportunity in the history of capitalism… The Economist is calling it "transformative"... but you'll probably just call it "how I made my millions." Big money is already on the move. Don't be too late to the party – find out the 1 stock to own when the Web goes dark.


Advertisement