The man hired to turn around the flagging fortunes of Suncor Energy Inc. said Tuesday he believes the company has been too focused in recent years on the energy transition and must get back to an oil-centred business strategy.
CEO Rich Kruger, who took the reins at the Calgary-based energy giant this spring, told analysts on a conference call that the company’s board of directors agrees with him that a “revised direction and tone” at the company is necessary.
He said he believes Suncor must not neglect “the business drivers of today” in favour of future-focused, clean and low-carbon energy pursuits.
“We have a bit of a disproportionate emphasis on the longer-term energy transition,” Kruger said, adding that while lower emissions energy is important, it is not what is going to make money for shareholders today.
“Today, we win by creating value through our large integrated asset base underpinned by oilsands.”
Kruger, the former CEO of ExxonMobil’s Canadian subsidiary Imperial Oil Ltd., was lured out of retirement this year to lead a restructuring at Suncor in the wake of a spate of high-profile operational and financial challenges at the company.
His stated goal to refocus Suncor’s efforts on its oilsands assets comes even as the company has publicly committed to achieving net-zero greenhouse gas emissions by 2050.
His comments also come at the tail end of a summer in which global temperatures have soared to never-before-seen heights and wildfires exacerbated by climate change have wreaked devastation across the planet.
“It’s good to hear a fossil fuel CEO being honest about their intentions — squeezing every last drop of oil out of the ground, even if it means cooking our climate and harming communities in the process,” said Greenpeace Canada climate campaign head Laura Ullman.
But she added Kruger appears to be blindly doubling down on business as usual in the face of an increasingly urgent need to rapidly transition to renewable energy.
“It’s hard to understand how anyone who has seen the absolute devastation of this summer’s fires, floods and (oilsands) leaks could continue pushing for the expansion of fossil fuels,” Ullman said in an email.
Suncor is not alone in its strategy, said Duncan Kenyon, director of corporate engagement with shareholder advocacy group Investors for Paris Compliance. Ever since crude prices spiked in the aftermath of last year’s Russian invasion of Ukraine, he added, energy companies have been laser-focused on maximizing profits from oil.
European energy giant Shell, for example, angered climate activists earlier this year by effectively abandoning its plan to cut oil production by 1 to 2 per cent per year until the end of the decade.
British energy giant BP has also scaled back its greenhouse gas emission reduction targets in the wake of last year’s record profits from oil, while ExxonMobil’s CEO has boasted of “leaning in” to the petroleum products that are in demand today.
“(Suncor’s move) is really consistent with where almost every major oil company globally is going,” Kenyon said.
“They are all absolutely focusing on their short-term balance sheet performance.”
Last year, Suncor sold off its wind and solar power assets, getting out of the renewable energy business it had been involved in for more than two decades.
Instead, the company said at the time, it would focus on advancing the development of low-carbon fuels (including sustainable jet fuel) as well as the commercial-scale deployment of carbon capture technology.
The company also increased its presence in Canada’s oilsands this year, acquiring 100 per cent ownership of the Fort Hills oilsands mine in northern Alberta by buying out previous partners Teck Resources and TotalEnergies.
Suncor is a member of the Pathways Alliance, a consortium of Canadian oilsands companies that have all committed to net-zero by 2050 and have proposed working together to construct a massive carbon capture and storage transportation hub in northern Alberta to help reduce emissions from oilsands production.
Kruger said Tuesday the company remains committed to Pathways, adding the group is hoping to finalize talks with the federal and Alberta governments about a fiscal framework for carbon capture projects as early as this fall.
However, Kenyon said he thinks Suncor’s focus on oil ignores the “demand erosion” risk the company faces as the pace of electric vehicle adoption picks up and buyers seek out lower-cost, lower-emission barrels in the future.
“They’re trying to cash in, in the short-term,” he said. “But I don’t see any acknowledgment of the risk of doubling down on ‘business as usual.’ “
On Tuesday’s conference call, Kruger said investors can expect to hear more on Suncor’s new direction in the months to come. But he said already in the second quarter, the company has made “material progress” towards its new goal of focusing on the fundamentals. In June, Suncor announced it would reduce its employee head count by 20 per cent, or 1,500 people, by the end of the year in order to eliminate unnecessary or “unaffordable” work.
As of Aug. 1, 535 of these job reductions have already occurred, Kruger said, resulting in a cost reduction of about $125 million so far.
“These actions, they aren’t easy, and they certainly aren’t taken lightly, but they are necessary for our competitiveness,” he said.
Suncor said Tuesday it earned $1.88 billion in the second quarter of 2023, down from approximately $4 billion in the same period last year when oil prices were higher.
The Calgary-based energy giant says it took a $275-million restructuring charge in the quarter related to the previously announced job cut plans.
As a result of this restructuring charge, Suncor said its adjusted funds from operations for the three months ended June 30, 2023, amounted to $2.7 billion or $2.03 per share, compared to $5.3 billion or $3.80 per share in the prior year’s quarter.
The company suffered a high-profile cybersecurity incident in June but said the breach did not have an effect on its financial results for the quarter.