Suncor to Wind Down Canadian Oil Sands Mining Investments

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Researched by Industrial Info Resources (Sugar Land, Texas)--The era of big oil sands mining investments by Suncor Energy (NYSE:SU) (Calgary, Alberta) is coming to a close, for now at least, according to the energy producer's top executive. The company's Fort Hills project in Alberta, which was 76% complete at the end of December, is expected to achieve first oil by the end of 2017. Industrial Info is tracking active Suncor projects worth more than $37 billion.

Suncor has boosted the estimated cost of the Fort Hills project as a result of construction delays caused by last summer's massive wildfires, as well as design and construction changes. Those changes have increased planned nameplate capacity for the project by 8% to 194,000 barrels per day (BBL/d). The project cost is now estimated at between C$16.5 billion ($12.6 billion) and C$17 billion ($13 billion), up about 10% from the previous estimate. Suncor said its share of Fort Hills' remaining project capital is between C$1.6 billion ($1.2 billion) and C$1.8 billion ($1.4 billion).

Chief Executive Officer Steve Williams said during Suncor's fourth-quarter 2016 earnings presentation that the company will not be making similar oil sands mining investments any time soon.

"Mining investments are coming to an end, not just for Suncor, but for the industry, I believe, for a considerable period, probably in excess of 10 years," Williams said, adding Suncor has "no plans to be going ahead with major capital investment in either mining or in situ in the foreseeable future."

Suncor's capital expenditure guidance range for 2017 is C$4.8 billion ($3.7 billion) to C$5.2 billion ($4 billion), down substantially from the C$5.9 billion ($4.5 billion) that was reported for 2016. Going forward, Williams said, organic growth spending will be substantially less as "this part of the cycle is coming to an end."

Another major capital investment, the Hebron deepwater oil production project, located offshore Newfoundland and Labrador, is also expected to achieve first oil by the end of this year, followed by a three-year ramp up to full production rates, Williams said. Suncor is a 21% owner of the project in a consortium led by Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas). Industrial Info is tracking more than $5 billion in activities related to the project.

Suncor reported C$531 million ($407 million) in net earnings for fourth-quarter 2016, compared with a net loss of C$2 billion ($1.5 billion) in the fourth quarter of 2015. The company noted that the net loss in the prior-year quarter included nearly C$1.6 billion ($1.2 billion) of non-cash impairment charges.

The Trump Factor
Williams said during the earnings presentation that he was positive, overall, regarding the direction of U.S. President Donald Trump and his selection of former Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas) chief executive Rex Tillerson as U.S. Secretary of State.

Tillerson "has great experience not just in the industry but with the Canadian oil sands. On his watch, significant investment came into the oil sands, and he understood that -- when you look at the long-term continental balance -- Canadian oil sands are a vital part," Williams said.

The Trump administration has spoken of the possibility of imposing a 20% border tax on imports, but Williams said he doubted such a tax will be enacted. Williams added that if the U.S. were to impose such a tax, Suncor has businesses in both Canada and the U.S., "so we are unusually advantaged."

Trump met with Canadian Prime Minister Justin Trudeau in Washington, D.C., on Monday to discuss trade-related and other issues. Trump said after the meeting he would favor "tweaking" U.S.-Canada trade rules, but played up the strong relationship between the two countries.

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