Suncor Cuts Spending Again

Suncor cuts spending again
Oilsand giant's 2009 target of $10 billion now less than a third of that

By Dave Cooper
With files from Darcy Henton, Calgary Herald and Bloomberg News, The Edmonton Journal; With files from Calgary Herald and Bloomberg News
January 21, 2009

Suncor Energy is slashing capital spending in half to $3 billion as lower oil prices take their toll on expansion plans by Canada's second largest oilsands producer. It is the second cut for the company since October, when its target for 2009 was as much as $10 billion.

The energy giant also reported the first loss in its company history, with a fourth quarter net loss of $215 million compared with net income of $1.04 billion a year earlier.

The new capital spending cuts mean construction on Suncor's Voyageur upgrader and Firebag stage 3 near Fort McMurray will be wound down and placed in “safe mode.” The company said it does not know when work to complete the projects will resume.

“What you can expect from us is that we'll no longer talk about Voyageur as a big, $20-billion project,” said Suncor CEO Rick George. “When we restart these, we'll restart them one project at a time.”

Voyageur was intended to increase oil production to 550,000 barrels per day by 2013. As of Dec. 31, Suncor had spent about $7 billion on the series of projects.

Jacob Irving of the Oil Sands Developers Group said Tuesday that overall oilsands capital spending is forecast to decline by $13.5 billion in 2009, a figure arrived at before the latest Suncor cuts. However, he said while capital spending has declined, member firms have reported that operational spending has been largely unaffected.

“The oilsands firms are still hiring permanent staff for operations. It is the construction area that is feeling the cuts.”

Between 2008 and 2010, oilsands companies had planned to spend $128 billion on capital projects — including upgraders near Fort Saskatchewan — but that figure now stands at $92 billion, a total that includes projects which have been announced and are on hold, and others still awaiting a final decision, such as Imperial's Kearl mine and upgrader.

Premier Ed Stelmach said restoring and maintaining oilsands jobs is a No. 1 concern of his government and it will work with oil companies to help them through the tough times.

He said the impact of the slowdown in the oilsands is already being seen across Canada.

“I heard in Ottawa from the Maritime premiers especially the thousands of people that are back home,” he told reporters Tuesday. “They had a job in Alberta and now had been laid off … a lot of activity has really slowed down.”

He said one concern his government is hearing from oilsands companies is the need for a treaty or agreement on climate change so they know what's coming at them in the future.

The continuing slowdown is a worry for manufacturers, like Edmonton's Waiward Steel Fabricators. “This is going to cause us to do some layoffs if things don't turn around by March or April,” said Don Oborowsky, Waiward's chief executive officer.

“I really fear that. We have spent a lot of time and money building a workforce, through apprenticeships and immigration. You can't just stop and start these big projects, they take years to build,” he said.

“I hope the oilsands firms use this time to get caught up on their engineering and design, and that oil comes back to $65 a barrel so they can start pushing out these projects,” said Oborowsky.

“The world needs oil, and this on/off seems really quite unnecessary to me.”

Ron Harry, executive director of Building Trades of Alberta, said the slowdown has had an impact on his members, but things outside the oilsands are actually pretty good.

“The situation is not devastating for us. We have a lot of construction, and big projects like Keephills and Scotford. And there are always maintenance projects,” said Harry.

He said Suncor's cuts are not a surprise since Suncor had said in the past that the Voyageur project would be adjusted to match the economic situation and price of oil.

“On the positive side, I am not that shocked. We should focus on being ready for when the economy turns around.”

Alex Pannu of the Christian Labour Association of Canada said his group is monitoring the situation in Fort McMurray and is “optimistic that once the economy rebounds companies will put plans in place” to rehire construction workers.

Darlene LaTrace, executive vice-president of the Edmonton Construction Association, said outside of the oilsands, there is plenty of work proceeding.

“I don't see the negativity here. The government still has so much to build, but we are seeing a shift this year. There are now many bids on each job where in the past there were often few. So the customers are pretty happy,” she said.

“Last year we had no drywallers available, and now we have lots, for example.”

For 2009, Suncor expects its oil to sell for $4.50 to $5.50 per barrel below benchmark West Texas Intermediate crude.

Shrinking margins from processing crude into fuels such as gasoline and diesel will force some U.S. refiners to close plants during the next two years, Suncor's Rick George said during a conference call with investors and analysts. U.S. gasoline prices will remain “under pressure” because of a glut, he said.