Suncor Lowers Guidance, Shares Tumble
CALGARY, Alberta (Reuters) - Suncor Energy Inc. (Toronto:SU.TO - news) warned of weaker than expected first-quarter earnings on Thursday due largely to sharply higher costs and lower production at its huge oil sands operation in Western Canada.
Canada's third-largest integrated oil company said it expected to report first-quarter earnings of C$80 million ($50 million) to C$85 million. Analysts surveyed by Thomson Financial/First Call had forecast earnings of about C$100 million, or 45 Canadian cents a share.
Suncor shares were down C$1.63, or nearly 3 percent, at C$57.02 at midday on the Toronto Stock Exchange as investors reacted negatively to the news of higher operating costs, reversing weeks of gains as Middle East tensions pushed crude prices up to $27 per barrel.
Calgary-based Suncor said a March 20 power outage at its massive oil sands operations near Fort McMurray in northern Alberta would cut first-quarter production to between 175,000 and 185,000 barrels per day. It originally estimated daily output would average between 190,000 and 205,000 barrels.
It said the impact of the outage, combined with planned maintenance work, brought forward to take advantage of the down time, caused the drop in production.
Revised maintenance and lower production contributed to operating costs in the quarter rising to C$16 to C$16.25 per barrel, compared with the target of C$10.50 to C$11, it said.
Suncor also said sales would be hit by the impact of unplanned outages at a few of its customer's refineries, which reduced the amount it could prudently sell into the market.
Warm winter weather and the weak economy also lowered demand for distillate products and hit margins, it said.
Randy Ollenberger, an analyst with Merrill Lynch, said operating costs and production at the sprawling Fort McMurray plant will be key to Suncor's performance.
Ollenberger attributed the stock's slide to investor concerns about cash costs jumping almost 50 percent above expectations.
"It's something that bears watching, no question about it. But, at this point, it's not enough for me to get concerned about and change my opinion on the company," he said.
He continues to rate the firm as a "strong buy."
Costs also jumped because the firm accelerated the removal of overburden covering the gooey mixture of sand and oil in anticipation of higher production later this year, spokesman John Rogers said. The move will save money in subsequent quarters.
"We'll probably average for the year (costs) somewhere in the C$11 to C$11.50 per barrel range for all four quarters together," he said.
The company said first-quarter cash flow from operations is expected to be cut by about C$47 million, a reduction tied to its executive compensation programs.
Suncor said its after-tax earnings will be reduced by about C$11 million due to final expenses from its long-term incentive programs, put in place in 1997 and tied to the completion of its Millennium oil sands project.
"The payout of that consisted of some shares and some cash, and it vested and came into completion April 1," said John Rogers, Suncor vice-president of investor relations.
Besides its oil sands production, expected to nearly double this year to 225,000 barrels a day because of a recent C$3.4 billion expansion, Suncor is known for natural gas production in Western Canada and a chain of service stations in Ontario.
($1=$1.59 Canadian) |
