Canadian Manufacturing

Suncor pressing ahead for $13.5B Fort Hills project

Calgary-based Suncor pressing ahead with $13.5-billion Fort Hills oilsands mine despite weak global oil prices

CALGARY—Costs are coming down and high-quality workers are easier to come by in Alberta’s oilsands as activity slows in response to lower world oil prices, the CEO of Suncor Energy Inc. said.

The Calgary-based oilsands producer is pressing ahead with its $13.5-billion Fort Hills oilsands mine, in partnership with the Canadian arm of France’s Total S.A. and Vancouver miner Teck Resources Ltd.

First oil is expected in 2017, eventually ramping up to 180,000 barrels per day.

The region is seeing some deflation in construction costs, Steve Williams told analysts on a conference call to discuss Suncor’s fourth-quarter results.

He did not quantify the expected savings.

“We’re finding that people are much more local now, so we’re not having to fly them in from such distances,” Williams said.

“We’re seeing the quality of worker improve. We’re seeing the productivity of the groups improve.”

About 3,000 workers are currently employed at the Fort Hills project, which is proceeding as planned.

Suncor is putting about $1.6 billion towards Fort Hills this year and expects the project to be half completed by the end of 2015.

The sharp downturn in crude prices was evident in Suncor’s fourth-quarter results, released Wednesday night.

The company’s net earnings shrank to $84 million, down 81 per cent from the $443 million it posted a year earlier.

Operating earnings, which remove some one-time items, were $386 million, or 27 cents per share, which missed the average analyst estimate of 35 cents a share, according to Thomson Reuters.

During the same period a year ago, operating earnings were $973 million, or 66 cents per share.

Cash flow from operations fell to $1.49 billion from $2.35 billion.

The American benchmark price for crude has shrivelled to around US$50 a barrel, down from the US$107 mark it hit in June.

“Today’s low oil prices should not come as a surprise. In fact, on the contrary, it was the stable pricing of the last few years which represented the anomaly,” said Williams.

“We planned for this crude price environment and we’re prepared to manage through it.”

Last month, Suncor slashed $1 billion from this year’s capital spending, which is now expected to come in between $6.2- to $6.8 billion.

It also announced it would be cutting 1,000 jobs—mainly contractors—from its total workforce of around 14,000.

Some longer-term projects that have not been given the official green light from Suncor’s board of directors are on hold.

The company’s quarterly dividend is staying at 28 cents a share.

Share repurchases have been suspended.

Total output was down slightly at 557,600 barrels per day during the last three months of 2014, versus 558,100 in the prior year period.

Oilsands output was down to 384,200 barrels a day from 409,600.

Cash operating costs in the oilsands fell to an average of $34.45 a barrel during the quarter, compared to $36.85.

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