Suncor positioned to buy, insulated from discounted oil sands crude
February 9, 2018
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Suncor Energy Inc.’s CEO Steve Williams said his company is well-positioned to buy competitors that are hurting from substantial price discounts on their oil sands crude.
According to Canadian Press, Canada’s largest energy company is insulated from low prices being paid for Western Canadian Select heavy oil because it has plenty of contracted pipeline capacity and is able to use its crude in its refineries, Williams told a conference call following the company’s latest financial results.
“It clearly gives Suncor an advantage,” he said when asked by an analyst if he is seeing more corporate buying opportunities.
“So I wouldn’t want to go on and speculate about acquisitions and such but, to the extent that we’re not exposed to it and others are, and therefore their earning capability in these periods is constrained, there is an impact.”
Pipeline constraints have been blamed for the doubling of typical discounts paid for WCS compared with the benchmark West Texas Intermediate to as much as US$30 per barrel. On Wednesday, the differential was just under US$29.
Suncor has been an active buyer of oilsands assets. It purchased Syncrude partner Canadian Oil Sands Ltd. for $6.6 billion in 2016 and then spent an additional $937 million to buy a stake from Murphy Oil, thus boosting its ownership in the mining project from 12 to 54 per cent.
Williams said Suncor is also a “potential acquirer” of downstream assets, adding its retail Petro-Canada operations are doing well and prove the company was right to resist pressure a year ago to sell them.
Calgary-based Canbriam Energy Inc. announced Thursday it has agreed to sell a 37 per cent stake in the company to Suncor in exchange for $52 million and its northeast B.C. lands prospective for Montney natural gas.
Williams said the deal continues Suncor’s strategy to reduce its natural gas holdings in view of continued low prices, adding Canbriam has the “best technical expertise and focus” to develop the assets while allowing Suncor to share in any new value that’s created.
The deal adds nearly 50,000 net hectares to take Canbriam’s total Montney position to about 75,000 hectares, said Bill Stait, Canbriam’s director of investor relations. He said the Suncor land is producing about nine million cubic feet of gas per day.
Analysts applauded Suncor for its financial results released late Wednesday.
It reported earnings per share of 79 cents, versus analyst expectations according to Thomson Reuters of 71 cents, and net income of $1.31 billion versus predictions of $1.26 billion.
“Tighter cost management than we expected and higher refining margins likely drove the beat versus consensus,” said analyst Paul Cheng of Barclays in a note.
Suncor also announced a 12.5 per cent increase in its dividend and said it would extend its share buyback program to buy and cancel another $2 billion worth of shares next year.