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Aerial image of an oil sands processing facility and its associated tailings ponds.

Picasa/Environment and Climate change Canada

Canada's largest oil sands producers pumped out heavy losses in the second quarter, but say two years of deep cost cutting has put them in a position to consider expansion.

Suncor Energy Inc. was hit hardest by the massive wildfire that burned through northern Alberta, including parts of Fort McMurray, and forced much of its operations off-line in May. Meanwhile, Suncor, Cenovus Energy Inc. and MEG Energy Corp. were also pressured by a 21-per-cent drop in benchmark oil prices.

Yet, each company trumpeted its lower costs after staff layoffs, dividend cuts and sharp reductions in capital spending that were prompted by the energy-sector downturn. The industry has shelved billions of dollars worth of expansion plans, and many smaller developers have sold out or been forced into bankruptcy.

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Crude prices had been on the rebound, climbing to more than $51 (U.S.) a barrel in June, but have since tumbled nearly 20 per cent as a result of concerns over rising inventories and weak demand. U.S. benchmark West Texas intermediate sold for $41.12 a barrel, down 80 cents, on Thursday.

Suncor, Canada's largest energy company, has taken advantage of the slowdown, acquiring Canadian Oil Sands Ltd. for $4.2-billion (Canadian) early this year, then snapping up Murphy Oil Corp.'s 5-per-cent stake in Syncrude Canada Ltd. for $937-million. In June, it completed a major share issue, garnering proceeds of $2.8-billion and sparking speculation that it may have more big buys in mind.

Chief executive officer Steve Williams acknowledged the speculation on Thursday, but cautioned that he has no plans to engineer a corporate transformation through the acquisition market.

"We continue to took for opportunities to build shareholder value through more opportunistic [acquisitions and divestitures]," Mr. Williams said in a conference call. "But be very clear – we will not chase the market. We'll only act if we see the opportunity for genuine long-term value creation."

With current assets, including the Fort Hills oil sands project now under construction, Suncor is expected to boost output to 800,000 barrels a day by 2019, representing a 40-per-cent increase in five years, he said.

Suncor said its operations were fully restored by the middle of the month following the outages caused by the wildfires. But in the second quarter, overall production averaged 330,700 barrels a day, down 41 per cent from the same period in 2015.

The company lost a net $735-million, or 45 cents a share, down from a year-earlier profit of $729-million, or 50 cents.

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Cenovus, known for its Foster Creek and Christina Lake oil sands projects, was not affected by the fires. It cited sharply lower prices for oil and natural gas, as well as weak refining conditions, for a loss of $267-million, or 32 cents a share. That was down from a year-earlier profit of $126-million, or 15 cents.

The company said it cut its operating costs by 28 per cent in the quarter, and is on track to slash capital and operating expenses by $500-million in 2016. It expects most of the savings it's made in the past two years to remain after oil prices rebound.

As a result, the company is considering restarting construction on a 50,000-barrel-a-day expansion of its Christina Lake steam-driven project south of Fort McMurray, which it shelved in 2014, CEO Brian Ferguson said.

It will announce its decision on the project in December. Costs have fallen to the point where short-term oil prices factor less in the calculus, Mr. Ferguson said in an interview.

"I'm not waiting for a price signal," he said. "We've got nearly $4-billion of cash on the balance sheet, so to be able to be countercyclical, to actually construct projects when industry activity is low and therefore when costs are low, I think is a good thing."

MEG, which also has a development in the Christina Lake region, said it may direct $30-million into expansion projects later this year, thanks to its own efficiency improvements that have reduced operating costs by $2 a barrel to $7.43 since the second quarter of 2015, CEO Bill McCaffrey said.

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In the most recent quarter, MEG recorded a loss of $146-million, or 65 cents a share, compared with a year-earlier profit of $63-million, or 28 cents.

Suncor and Cenovus have the financial muscle to move forward with sizable projects, though Suncor has no current plans to start one from scratch beyond the $15-billion Fort Hills development, said Laura Lau, portfolio manager at Brompton Group.

As for MEG, many investors would prefer the company concentrate on reducing its debt, however, Ms. Lau said.

"With the cost savings, they want to put it through to growth. I can understand they're a little antsy there," she said. "Also, what do you do with all these people that you had earmarked for growth projects? Do you let them go? Do you keep them? That's the other issue."

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