Suncor stock drops after oil and gas producer misses analyst profit estimate

CALGARY – Investors punished Suncor Energy Inc. after the energy giant delivered quarterly results that missed market expectations and posted a $1.49-billion writedown of the economically “challenged” Voyageur oilsands upgrader project.

The Calgary-based company’s stock closed down more than five per cent on the Toronto Stock Exchange, dropping $1.85 to $32.53. Trading — at more than 11 million shares — was heavier than usual for Suncor stock.

Suncor CEO Steve Williams told analysts on a conference call that strong refinery performance and lower costs at a new oilsands project were bright spots but admitted the final quarter of 2012 “presented its share of challenges.”

Late Tuesday, the Calgary-based company (TSX:SU) posted a net loss of $562 million, or 37 cents per share.

Even without the Voyageur charge, Suncor widely missed the average analyst estimate of 76 cents per share in operating earnings. Instead, Suncor reported $1 billion in operating earnings for the quarter, or 65 cents per share.

The fourth-quarter net loss, which included the Voyageur writedown, contrasted with Suncor’s net earnings of $1.43 billion, or 91 cents per share, in the same period of 2011.

Suncor’s oilsands production during the quarter, excluding its 12 per cent interest in the Syncrude mine, was strong at 342,800 barrels per day, up from 326,500 a year earlier.

However that oil was sold on the market for a lower price because of upgrader outages. Upgraders convert lower-quality oilsands bitumen into a high-quality synthetic light oil that refineries can easily process.

While the upgrading problems experienced by Suncor in October and November were “frustrating,” Williams said they’re not considered to be major and the company has since moved past them.

“In Quarter 4 and in 2012 as a whole, I was disappointed in our oilsands upgrading reliability as we dealt with several unplanned outages that reduced both our production and our profitability,” Williams said.

“However, I see many indications of progress, and I’m confident that we’ll take another step forward on the operational excellence journey in 2013.”

Suncor also experienced delays in restarting its Buzzard offshore platform in the North Sea and Terra Nova platform off the coast of Newfoundland, following planned maintenance work during the fourth quarter.

Suncor also said Tuesday it has been notified by the Canada Revenue Agency that $1.2 billion may be added to its tax bill because of how hedging losses from the Buzzard offshore field were handled in 2007, when the asset belonged to Petro-Canada.

“The company firmly believes it will be able to successfully defend its original filing position so that ultimately no increased income tax payable will result from the CRA’s actions,” Suncor said.

On a more positive note, Suncor said its Edmonton refinery is capable of processing 5,000 more barrels per day than originally designed because of efficiency improvements.

As well, the fourth phase of Suncor’s steam-driven Firebag oilsands project came in 15 per cent below budget.

The Voyageur upgrader, along with the Fort Hills and Joslyn oilsands mines, is part of a joint venture Suncor inked with the Canadian arm of France’s Total SA just over two years ago.

The companies are reviewing each of those projects to ensure they’re built in the most cost-effective way possible and have said any of them could be cancelled if they don’t pass economic muster.

The partners at Fort Hills — Total, Suncor and Vancouver-based miner Teck Resources Ltd. (TSX:TCK.B) — expect to make a decision on whether to go ahead with the mine during the second half of 2013.

On the call, Williams said Fort Hills is considered to be the best of the three projects and a 2017 start-up remains the most likely scenario.

It’s not clear yet when Total and Suncor will make a decision on the Joslyn mine.

A call on whether to go ahead with building the Voyageur upgrader is expected by the end of March, but the company signalled in its quarterly release that it’s not looking promising.

“Suncor’s view is that the economic outlook for the Voyageur upgrader project is challenged. Suncor and its partner continue to work diligently towards determining an outcome for the project,” it said.

“The partners have been considering options for the project, including the implications of cancellation or indefinite deferral.”

Suncor’s opinion of the economics of the project changed rapidly as a boom in U.S. light oil production in places like North Dakota caught many in the industry off guard.

The flood of light oil suddenly flowing into the market has made Suncor wonder whether it’s worthwhile to invest billions to upgrade its heavy crude into a similar product.

On the call, Williams said Suncor itself doesn’t need Voyageur to market its crude, because it has enough assets in operation already. It’s a different situation for Total, however, and the two have to come to an agreement on what’s best.

Suncor and Total are weighing a “range of options,” including going ahead with the upgrader in its current form at one extreme and cancelling it outright at the other.

But there is not a whole lot of middle ground available, Williams added.

“At this stage in a project of this size, there is no easy way to go to a half or a quarter-size upgrader.”