Suncor Reports Quarterly Loss on Tumbling Oil Prices

By Joe Carroll

Jan. 20 (Bloomberg) -- Suncor Energy Inc., the world’s second-largest oil-sands producer, reported the first quarterly loss in company history and cut spending in half after crude plunged 35 percent. The shares had the biggest drop in a month.

The fourth-quarter net loss was C$215 million ($170.4 million), or 24 cents a share, compared with net income of C$1.04 billion, or C$1.10, a year earlier, the Calgary-based company said today in a statement. Excluding one-time items, Suncor had a profit of 46 cents a share, exceeding by 6 cents the average estimate of 15 analysts in a Bloomberg survey.

Margins from producing synthetic crude from the tar-soaked bogs of western Canada dwindled as New York oil futures fell 35 percent in the quarter from a year earlier to an average of $59.08 per barrel for the biggest quarterly decline in four years. Chief Executive Officer Rick George cut spending plans and delayed work on some of the company’s biggest projects to cope with tumbling prices and faltering demand for crude.

“Both crude-oil and natural-gas prices were in free fall in the last three months of 2008, cratering in response to a global economic meltdown and reduced expectations for global energy demand,” Chris Feltin, an analyst at Tristone Capital Inc., who rates Suncor “market perform,” said in a note to clients.

The quarterly loss was the company’s first since Philadelphia-based Sunoco Inc. sold its controlling stake in 1995. Full-year net income dropped to C$2.14 billion from C$2.98 billion in 2007. For 2009, Suncor expects its oil to sell for C$4.50 to $5.50 per barrel below benchmark West Texas Intermediate crude.

Shares Fall

Suncor fell C$2.26, or 8.6 percent, to C$24 at 10:10 a.m. in trading on the Toronto Stock Exchange, the largest decline since Dec. 22. Before today, Suncor had gained 11 percent this year after plunging 56 percent in 2008 for its worst performance in at least 14 years.

Shrinking margins from processing crude into fuels such as gasoline and diesel will force some U.S. refiners to close plants during the next two years, George said today during a conference call with investors and analysts. U.S. gasoline prices will remain “under pressure” because of a glut, he said.

Suncor isn’t considering any acquisitions because asset prices remain inflated from the rally in energy prices during the first half of 2008, George said.

“I think there’re some people hanging on to the history of it rather than the go-forward basis,” George said during the call.

Output, Costs

Suncor’s oil-sands and natural-gas production for the fourth quarter was 279,400 barrels of oil equivalent a day, compared with 290,700 barrels a year earlier, the company said.

Operating costs at the company’s oil-sands facilities surged 48 percent to C$41.30 a barrel, partly because of a November fire that temporarily shut some production, Suncor said.

The company has pre-sold about 23 percent of its 2009 and 2010 crude output for at least $60 a barrel under hedging agreements.

Most of Suncor’s operations extract oil-soaked sand from northern Alberta with mechanical shovels and process the bitumen into synthetic crude. The oil is shipped to refiners in southern Canada and the U.S. Midwest for processing into gasoline, diesel, jet fuel and chemicals.

Capital Spending

The board this month approved a revised 2009 capital spending program of C$3 billion, with about one-third of that for “growth projects” and the remainder for the “base business,” Suncor said in the statement. An October plan had targeted spending of C$6 billion this year, 21 percent less than in 2008.

With the revised investment forecast, construction of the Voyageur plant, a C$20.6 billion facility for processing bitumen, and Stage 3 of the Firebag venture will be suspended and the projects placed in “safe mode” pending the resumption of expansion work, the company said. Dates for restart and completion haven’t been determined, it said.

George said in October that the Voyageur plant would open a year later than planned. The Firebag project involves injecting steam into the ground to coax heavy crude to the surface.

Syncrude Canada Ltd., a joint venture led by Canadian Oil Sands Trust of Calgary, is the biggest oil-sands producer based on 2007 annual output.

To contact the reporter on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net