Suncor Energy Inc. is shaping its new growth strategy – one favouring smoothing out its existing operations rather than tackling projects that bring sharp increases to its budget.
The Calgary energy giant announced the largest dividend increase in its history, jacking up its quarterly payout to 20 cents a share, up 54 per cent from 13 cents, when it reported its first-quarter earnings late Monday.
Its plans to buy back shares also ballooned, with the company earmarking an additional $2-billion to its program in an effort to please investors hungry for healthy returns.
The careful expansion style and focus on shareholder returns serves as evidence Steve Williams, Suncor’s new chief executive officer, is staying true to his pledge to find the most profitable way to grow, even if it means sacrificing attention-grabbing increases in production. It also keeps question marks hanging over the company’s undeveloped Fort Hills oil sands mine as Mr. Williams stacks it up against investing in bite-sized growth efforts.
Suncor plans to “debottleneck” – industry slang for tweaking operations in an effort to make them more efficient – some of its existing projects such as Firebag and MacKay River, two major steam-assisted gravity drainage projects.
Mr. Williams calculates the company can churn out an additional 100,000 barrels of oil a day in the next three to four years thanks to these plans.
“You’ll see a lot of our growth focused on in-situ [projects] through that period,” Mr. Williams said on the company’s first-quarter conference call Tuesday. He noted this style of growth comes with relatively less risk and smaller budgets.
“These projects are extremely attractive because they come at a fraction of the cost of greenfield development,” the executive told shareholders at Suncor’s annual meeting in Calgary.
Suncor’s budget for growth projects is about $3.3-billion this year, with its maintenance budget hitting about $4-billion.
“You should not expect to see a spike in growth capital,” Mr. Williams said, noting he expects budgets to be between $7-billion and $8-billion a year for the next few years.
Suncor expects to decide whether to proceed with its multibillion-dollar Fort Hills mine by the end of the third quarter or beginning of the fourth. It shares the project with France’s Total SA and Canada’s Teck Resources Ltd.
New mines are notoriously expensive, although once they are built, they require much less ongoing investment. Mr. Williams declined to be specific about the future of Fort Hills.
“It is important we have the right cost data in order to make the right decision. Right now, it is looking reasonably positive,” he told shareholders.
“The point I would put alongside of it, the discipline I talked about, the long list of very attractive projects we have, it is going to have to compete against those.
“It has to pass the same tough tests,” Mr. Williams said.
Suncor cancelled its $11.6-billion Voyageur upgrader in March after it failed to meet the company’s standards for return. Suncor had already spent $3.5-billion when it put the project on hold in 2009.
The company earned $1.09-billion, or 72 cents a share, in the first quarter, down from $1.45-billion, or 93 cents, in the same period in 2012.
Suncor said the drop was caused by a $146-million after-tax foreign-exchange loss on the revaluation of its U.S.-dollar-denominated long-term debt and an after-tax charge of $127-million because of its decision to cancel the Voyageur upgrader.