Suncor expects dramatically higher savings

CALGARY — Suncor Energy Inc. expects annual cost-savings from its merger with Petro-Canada to dramatically exceed what it predicted when the blockbuster deal closed about 15 months ago.

CALGARY — Suncor Energy Inc. expects annual cost-savings from its merger with Petro-Canada to dramatically exceed what it predicted when the blockbuster deal closed about 15 months ago.

Canada’s largest energy company (TSX:SU) initially called for synergies of $300 million, then bumped that up to $400 million about a year ago.

Then on Thursday — as Suncor reported better-than-expected third-quarter results — CEO Rick George said the company now expects that figure to hit $800 million.

“It does feel like we’re coming out of the merger in really good shape,” George told analysts on a conference call. “This is going to get to be fun again.”

The savings are from improvements in how Suncor manages its supply chain and inventory — it has several refineries and Petro-Canada, Sunoco and Phillips 66 — gasoline stations in Canada and the United States. The company also cut head office and overhead costs.

Suncor stock surged more than 7.6 per cent to $35.42 on the Toronto Stock Exchange in Thursday afternoon trading.

Earlier, the oilsands giant said it earned just over $1 billion, or 65 cents per share, compared to profits of $929 million, or 69 cents per share a year earlier.

Operating earnings — which strip out the effects of one-time items — were $654 million, or 42 cents per share, versus $343 million, or 25 cents per share in the same 2009 period.

Both the net and operating earnings handily beat average analyst estimates of 36 cents per share compiled by Thomson Reuters.

The company says the increase was primarily due to additional oil and natural gas production and higher benchmark prices.

As well, Suncor booked $491 million from selling non-core assets. The company also took $220 million in impairment charges and writeoffs in the latest quarter.

Revenues increased to nearly $8.9 billion for the quarter, up from $8.5 billion last year.

Higher benchmark prices were partially offset by the widening price gap between light and heavy crude, and the stronger Canadian dollar relative to the U.S. dollar.

Oilsands output, excluding the company’s share from the Syncrude joint venture, edged higher to 306,600 barrels per day from 305,300 barrels a year earlier, the company said.

“It was one of our strongest quarters in terms of oilsands production, and what makes that even more important is that we’ve reached these volumes while also completing major planned maintenance,” George said.

During the quarter, Suncor continued with its plans to divest of a number of non-core assets.

In August, the company completed the sale of its Trinidad and Tobago assets and its shares in Petro-Canada Netherlands B.V. Suncor also sold off its non-core natural gas properties in west-central Alberta and its non-core U.K. offshore assets.

Shortly after announcing the Petro-Canada merger, Suncor said it aimed to bring in between $2 billion and $4 billion from the sales.

To date, Suncor has disposed of, or reached agreements to dispose of, assets worth approximately $3.5 billion.

“Our sale of non-core assets is really nearly complete,” George said.

“Our transaction metrics, we realize, are solid. It was executed very well, ahead of schedule.”

The company has also sold some retail gas outlets in Ontario, as required by the Competition Bureau following the Petro-Canada deal.

Suncor’s main focus continues to be on the oilsands, where it has vast mining operations just north of Fort McMurray, Alta., a 12 per cent stake in the Syncrude Canada Ltd. partnership and steam-driven operations at Firebag.

It also has an operating stake in the long-stagnant Fort Hills mine alongside Total SA and Teck Resources Ltd. (TSX:TCK.B). Suncor has said it plans to develop its other oilsands projects before it brings Fort Hills to the front-burner.

Suncor will announce the sequence in which it will develop its oilsands projects some time later this year.

At the height of the financial crisis about two years ago, Suncor put its $11.6-billion Voyageur oilsands upgrader into “safe mode.”

With oilsands output sure to rise, Voyageur will move ahead eventually, George said.

“In my mind, it’s not a question of if. The only question is when and the timing,” he said.