Suncor Profit Soars on Higher Oil Output

www.morningstar.ca 21 Jan 03(1:31 PM) |  E-mail Article to a Friend

By Jeffrey Jones

CALGARY, Alberta (Reuters) - Suncor Energy Inc. <SU.TO>, Canada's No. 4 oil producer, refiner and marketer, kicked off the industry's fourth-quarter reporting season on Tuesday with a tenfold jump in profit fueled by surging output and prices.

Suncor, best known for its newly expanded oil sands mining and crude processing operation in northern Alberta, said it was concentrating on cutting costs at the operation but warned sky-high prices for natural gas, a fuel for the plant, could hamper its plans.

It earned C$258 million ($168 million), or 56 Canadian cents a share, up from a year-earlier C$26 million, or 4 Canadian cents a share. That beat an average estimate of 50 Canadian cents a share among analysts polled by Thomson First Call.

Cash flow, which gives a glimpse into an oil company's ability to fund pending projects, was C$460 million, or C$1 a share, up from C$133 million, or 27 Canadian cents per share.

Full-year profit rose to C$761 million, or C$1.64 a share, from C$388 million, or 79 Canadian cents a share in 2001.

The oil industry is expected a gusher of hefty earnings for the fourth quarter after crude prices jumped 38 percent on fears of a Middle East war, then a strike in Venezuela that cut shipments from the world's fifth-largest exporter.

Canadian natural gas prices, meanwhile, soared 67 percent from the fourth quarter of 2001 amid cold weather in major U.S. consuming regions and lower-than-average inventories.

Suncor also produces natural gas in western Canada and runs the Sunoco-brand refining and marketing business in Ontario.

It started up a C$3.4-billion addition to its oil sands plant in late 2001, which helped drive production up 40 percent to 261,800 barrels of oil equivalent a day in the fourth quarter. Of that, 227,600 barrels a day was synthetic crude from the oil sands.

Suncor mines oil-laden sands and extracts the tar-like bitumen, which is processed into refinery-ready oil.

Suncor chief executive Rick George said his goal is to shave operating costs from C$12.50 a barrel in the fourth quarter, down from year-earlier C$17.45. Its oil sales price averaged C$39.02 a barrel.

"We still plan to exit 2003 in the C$10 to C$11 barrel range. That means, of course, we have to get another dollar a barrel out (and) we'll be working hard on that," George told analysts in a conference call. "The only exception is natural gas prices. If we see a spike on that, that will have an impact on us."

Suncor expects costs in 2003 to average C$12.50-C$13.20 a barrel on projected oil sands output of 215,000 bpd, a figure that includes a month-long maintenance shutdown starting late late April.

The next expansion project is called Firebag, where oil sands will be extracted using steam pumped into the earth to allow the thick crude to flow in wells instead of mining. That development and new processing equipment at the plant are expected to boost synthetic crude output to 260,000 barrels a day by 2005.

Shares in Suncor were up 26 Canadian cents at C$25.35 in Toronto on Tuesday. The stock is down about 6 percent since the start of the fourth quarter, compared with a relatively flat performance by the Toronto Stock Exchange energy group.

($1=$1.54 Canadian)