CALGARY - The head of Suncor Energy Inc. is downplaying two concerns that have hung over oilsands producers recently: cost inflation and delays for projects that would bring Alberta crude to new markets.
Chief executive officer Rick George said Wednesday he doesn't expect the cost of its Fort Hills oilsands mine to be nearly as high as another project that competitor Imperial Oil Ltd. (TSX:IMO) is building.
George also said the industry shouldn't have problems getting its crude out of Alberta and to market because there are plenty of pipeline proposals on the table besides the controversial projects to the U.S. Gulf Coast and West Coast.
"Usually when the market's worried bout something, it's not the right thing to worry about. It's usually something else that gets you," George, who retires in May, said on a conference call to discuss Suncor's fourth-quarter results.
He made his remarks after Canada's largest energy company (TSX:SU) reported a near 11 per cent increase in net earnings, and said production is starting to resume in Libya following a bloody civil war.
Suncor's board of directors expects to make a decision on whether to go ahead with Fort Hills in 2013, and George said he's reluctant to flesh out any details on what the costs of building the mine might be.
"Some of the numbers that you're seeing on Imperial's Kearl project look extremely high to us. Those look, really, way out of range and I don't have the details of their project to know how that compares. I would just say that our current estimates are significantly below those," he said.
In December, Imperial's (TSX:IMO) board approved an $8.9-billion expansion to an intial $10.9-billion phase that's expected to start up late this year.
When Imperial's board of directors approved the first phase of Kearl in the spring of 2009, it expected costs to be around $5 per barrel, they have since risen to $6.20 per barrel.
Suncor is the operator of Fort Hills with a 60 per cent stake. Total E&P Canada and Teck Resources Ltd. (TSX:TCK.B) evenly split the rest.
Fort Hills was shelved in late 2008 by then-operator Petro-Canada when costs spiralled out of control and the financial crisis began to take hold.
The $1.75-billion oilsands joint-venture Suncor inked with Total, the Canadian arm of the French energy giant, in late 2010 takes one competitor out of the equation and has helped "a ton" on the cost-inflation front, said chief operating officer Steve Williams, who will take the helm of Suncor when George retires.
Although labour is still an issue, George said he doesn't see costs of equipment like valves and compressors rising at nearly the same rate as those things did in the 2005 to 2008 boom.
Also on the call Wednesday, George said delays in building new oil pipelines out of Alberta won't be a cause of concern for about four or five years.
"There's plenty of Plan Bs on the table, and so my own view is that its not going to be a bottleneck," he said.
"I actually don't see crude getting backed up into Alberta."
Oil pipeline proposals, particularly those that would carry what environmentalists call "dirty" oilsands crude, have attracted vehement opposition. Regulatory reviews on projects connecting Alberta crude to both the U.S. Gulf Coast and Canada's West Coast have been dragged out amid the controversy.
George said the industry is looking at other options, citing two Enbridge Inc. (TSX:ENB) proposals to modify existing pipelines, rather than building new ones from scratch. One would reverse the Seaway pipeline, bringing crude from Cushing, Okla. to Gulf Coast refineries. Another would see part of Line 9 through Ontario reversed to bring Western Canadian crude eastward, though a review of that project is taking longer than expected, too.
Last month, the U.S. government rejected TransCanada Corp.'s (TSX:TRP) Keystone XL proposal, but left the door open for the pipeline company to apply for a new permit.
U.S. President Barack Obama said a deadline imposed on his administration by the Republicans to make a decision by Feb. 21 didn't allow enough time to adequately study a new route through Nebraska, so he had no choice but to reject the project. He said the decision had less to do with the pipeline's merits than with the arbitrary deadline the Republicans had set.
At the same time, a regulatory hearings on Enbridge's Northern Gateway pipeline to the northwestern B.C. port of Kitimat are underway. With thousands of people registered to speak before the panel, the process is expected to take about a year longer than expected.
Late Tuesday, Suncor posted net earnings of $1.43 billion during the last three months of 2011, compared to $1.29 billion a year earlier thanks to higher oil prices.
Revenues for the quarter were $10.1 billion versus $9.3 billion a year earlier.
Suncor's total upstream production during the fourth quarter averaged 576,500 barrels per day, a drop from 625,600 barrels per day during the same period of 2010. The decrease was due to asset sales throughout 2010 and 2011, lower output in Libya and unplanned outages at the Syncrude Canada oilsands project, in which Suncor has a 12 per cent stake.
Suncor's Libyan joint-venture partner has resumed production from three of five fields as stability gradually returns to the country following the death of long-time ruler Moammar Gadhafi late last year.
Production was about 25,000 barrels per day in the fourth quarter, and has since risen to about 35,000 barrels, said Williams.
"So Suncor is engaging with our partner in the interim government, but we're taking a cautious approach to reestablishing operations and have only a handful of employees on the ground at the present time," Williams said.
Suncor shares fell 13 cents to $34.41 in early afternoon trading on the Toronto Stock Exchange Wednesday.
