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Update3 – Suncor Spend C$5.5B 2010 – Upgrader Projects

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    Suncor to Spend C$5.5 Billion in 2010 to Boost Output (Update3)
    By Sonja Franklin
    Nov. 13, 2009 (Bloomberg)Suncor Energy Inc., which bought rival Petro-Canada in August, will spend C$5.5 billion ($5.2 billion) next year, partly to boost production from oil-sands projects such as Firebag.
    About C$1.5 billion will be directed toward funding for growth projects such as Firebag, while C$4 billion is targeted at sustaining existing operations, Calgary-based Suncor, Canada’s largest energy company, said today in a statement.
    Suncor had previously put all capital projects on hold until after the completion of its August takeover of Petro- Canada for about C$19.6 billion. The company said Nov. 6 it may divest up to C$4 billion in non-core assets, most of them next year, to focus on the oil sands in northern Alberta. Chief Executive Officer Rick George said in the statement that a “conservative” approach is best for the company.
    “I think George struck the right chords,” said Charles Maxwell, an analyst at Weeden & Co. in Greenwich, Connecticut, who rates Suncor shares “buy” and doesn’t own any. “The first thing he is doing, quite correctly, is finishing up what is already so committed to that you can’t turn it around.”
    Suncor will spend C$900 million to advance the third phase of its Firebag oil-sands project, which uses steam to pump the oil out of the ground. Firebag Stage 3 was about 50 percent complete when it was shelved at the beginning of the year. Suncor now expects production to start in the second quarter of 2011. The company didn’t say when Stage 3 would reach capacity of 68,000 barrels a day.
    Stage 4
    The company will spend another C$50 million to target first production from Stage 4, which has the same capacity, in the fourth quarter of 2012, according to today’s statement. The existing Firebag operations produced about 54,300 barrels a day in the third quarter.
    About C$390 million will be spent on fields offshore eastern Canada and operations in Syria and Libya previously owned by Petro-Canada, Suncor said.
    “Can we bring some projects back? Yes,” George said on a conference call with analysts and investors today. “But what I don’t want to do is go back to a world where we were making $10- billion project commitments upfront and then at some point have to pull back in.”
    Suncor will wait before sanctioning the 200,000-barrel-a- day Voyageur upgrader, a refinery-like plant which had been 15 percent complete at the end of last year before being deferred, and the Fort Hills oil-sands mine previously owned by Petro- Canada. Voyageur “is a great option for us down the road at some point,” George said.
    Fourth-Quarter Decisions
    Suncor said it plans to announce decisions in the fourth quarter of 2010. The company is “not sure at this point where Fort Hills fits into the development plan overall,” George said on the call.
    Suncor has already invested about C$3 billion into the Voyageur upgrader. The company may consider taking a partner on the project, which can be kept in “safe mode” for two to three years, George said.
    George said the C$25.3 billion Fort Hills project is “an important resource” for Suncor. “We are not abandoning it at all, it’s just about where it sequences in for us,” he said.
    Calgary-based UTS Energy Corp., which earlier this year thwarted a takeover attempt from France’s Total SA, has a 20 percent stake in Fort Hills. UTS fell 4 cents, or 1.8 percent, to C$2.13 on the Toronto Stock Exchange.
    Suncor, which has 17 buy ratings, four hold recommendations and one sell from analysts surveyed by Bloomberg, rose 45 cents to C$36.89.
    The company said that by the end of the year it will have saved about C$400 million through job cuts, product marketing, and supply chain optimization. That’s more than the original target of C$300 million in operational savings a year. Measures announced include 1,000 job cuts and the cancellation of a plan for a new 25,000-barrel-a-day coker at the Montreal refinery.
    To contact the reporter on this story: Sonja Franklin in Calgary at sfranklin6@bloomberg.net

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