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The Husky Energy tower in Calgary, Monday, Feb. 1, 2010.


Fat refinery profits have driven a surge in profits at a trio of Canada's largest energy producers.

With Canadian crude oil still selling at a dramatic discount to international blends, companies with so-called "integrated" production have been able to wring extra money out of making refined products, whose prices are influenced by Brent, the lucrative international crude standard. Refineries have traditionally been among the more anemic cash generators for energy companies.

Now, for Husky Energy Inc.,Imperial Oil Ltd. and Suncor Energy Inc., they have become a key earnings pillar. Both Imperial and Suncor saw record refining profits on the quarter, with Imperial pulling in $536-million, more than half of the total quarterly profit.

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Refining, or downstream operations, saw "the strongest single-quarter earnings on record," Imperial said in a statement. "These results were primarily driven by solid refining operations that captured strong mid-continent refining margins."

Those margins were largely behind an overall quarterly performance that led CIBC World Markets to entitle a commentary: "Q3 Financial Results Blow Away Street Expectations."

At Suncor, refining and marketing brought in 45.5 per cent of total profit. That's not the highest it has ever been – in percentage terms, that part of Suncor's business made up 55 per cent of earnings in the second quarter of 2011. But it's still high compared to historical numbers, such as the second quarter of 2011, when refining and marketing made up just 27 per cent of total profit.

Suncor chief executive officer Steve Williams said Thursday he is "delighted with the performance in refining and marketing," which have come amid a price imbalance that, if it persists, stands to continue generating large profits for companies with refinery operations.

"It is a very good position for companies like Suncor to be in – where they have an integrated business model," he said, adding that "to have the benefit to take the profit either in your upstream or in your downstream is a very powerful position."

Husky is another example of how powerful that position can be: Its U.S. refining operations produced $195-million in third-quarter profit, far eclipsing the $85-million posted in the second quarter and the $82-million from the same period last year.

The surge almost completely offset weakness in the price of the oil and gas that Husky produces. Husky's average oil price in the third quarter was $70.14 a barrel, down 11 per cent from the previous quarter, while gas prices fell 40 per cent. And its production remained roughly flat. But profit rose 22 per cent to $526-million. The refining performance prompted another laudatory headline from CIBC: "Downstream Drives Massive Q3 Beat."Husky CEO Asim Ghosh said the firm has deliberately sought to own the barrel from well to refinery, so that it can benefit when crude prices are down, but also if they rise again in coming quarters. "I'm just positioning myself as a company to be in a place where in choppy markets I can move up and down the value chain and provide some overall stability," he said.

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That effort includes a series of measures, including maintaining space on pipelines in hopes of avoiding logistical constraints that make it tough to get oil to markets – and hurt prices.

"We are trying to position ourselves at all points in time to be divorced from regional dislocations," Mr. Ghosh said.

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About the Author
Asia Bureau Chief

Nathan VanderKlippe is the Asia correspondent for The Globe and Mail. He was previously a print and television correspondent in Western Canada based in Calgary, Vancouver and Yellowknife, where he covered the energy industry, aboriginal issues and Canada’s north.He is the recipient of a National Magazine Award and a Best in Business award from the Society of American Business Editors and Writers. More


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