Suncor cuts $1.5 billion from budget to cope with low oil prices, COVID-19 impact

Suncor president and CEO Mark Little prepares to address the company's annual meeting in Calgary, Thursday, May 2, 2019. THE CANADIAN PRESS/Jeff McIntosh

Oilsands giant Suncor Energy Inc. is putting projects on hold and cutting its 2020 capital budget by 26 per cent to deal with lower oil prices linked to a market share battle between Saudi Arabia and Russia, as well as lower demand for fuel because of the COVID-19 pandemic.

The Calgary-based producer, refiner and operator of Petro-Canada service stations is slashing its 2020 capital spending budget by $1.5 billion to a range between $3.9 billion and $4.5 billion.

READ MORE: Live updates: Coronavirus in Canada

“The simultaneous supply and demand shocks are having a significant impact on the global oil industry,” said Suncor CEO said Mark Little in a statement late Monday.

“We are adjusting our spending and operational plans to be prepared in the event the current business environment persists for an extended period of time.”

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The company’s shares rose by as much as 9.9 per cent to $16.94 in Toronto on Tuesday morning. They were trading at more than $40 per share late last month.

READ MORE: Oil and gas companies taking steps to keep employees safe from COVID-19

Suncor’s cuts follow billions in spending reductions by other major oilsands players including Canadian Natural Resources Ltd., Cenovus Energy Inc. and Husky Energy Inc.

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Suncor also reduced its 2020 production guidance by 60,000 barrels of oil equivalent per day to about 760,000 boe/d, in part to account for a plan to go to one production train from two at its Fort Hills oilsands mine and a deliberate delay in returning its MacKay River thermal oilsands project to service following repairs until May because of low bitumen prices.

READ MORE: Suncor Energy files application for base oilsands mine extension

“Overall, the corporate update shows more aggressive reductions in capex and production than we had made in our preliminary estimate adjustments a couple weeks ago,” said CIBC analyst Jon Morrison in a report.

“Albeit, this is unsurprising as the macro market has deteriorated since that time.”

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As a result of spending deferrals, Suncor is pushing back its medium-term target of adding $2 billion in incremental annual free cash flow improvements from to 2025 from 2023.

Suncor says some projects are being shelved for up to two years, including a $1.4-billion plan announced in September to install two cogeneration units at its Oil Sands Base Plant in northern Alberta that would have reduced greenhouse gas emissions.

The company is also halting work on a new $300-million wind power plant in southern Alberta approved in December.

READ MORE: Husky Energy is cutting spending by $1 billion this year

On Sunday, Husky announced it would suspend major construction work on the West White Rose Project off Newfoundland.

Suncor has a 26 per cent interest in the project, which is about half completed and was expected to produce 75,000 barrels per day of oil when on stream in 2022.

Construction of connecting pipelines to enhance synergies between Suncor’s Base Plant and nearby Syncrude oilsands operations are to proceed, along with the deployment of driverless haul trucks at Fort Hills.

Suncor says it will reduce total operating expenditures across the business by more than $1 billion this year, versus $11.2 billion of expenditures in 2019, without saying what affect that will have on its workforce.

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It said it expects generally lower demand for its refined products but has not yet adjusted guidance because of “significant uncertainty” as to how far demand will fall.

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