Suncor Energy Inc. is scouting for more deals after building up a sizable war chest, as weak prices hammer profits and drive expectations that industry consolidation is poised to accelerate.
The Calgary-based company reported a third-quarter loss of $376-million late Wednesday despite higher output and lower costs at its sprawling oil sands operations.
But it ended the period with $5.4-billion in cash, a holdover from periods of stronger prices. Its chief executive officer said Thursday that the company was not done shopping for possible acquisitions.
Suncor is trying to sway Canadian Oil Sands Ltd. shareholders to accept a hostile takeover bid. The all-share deal would not significantly dent Suncor's balance sheet, Steve Williams said. "So we still remain in a very powerful position."
The 16-month slump in oil markets has forced major energy producers to abandon growth projects and slice billions of dollars from spending plans. On Thursday, Athabasca Oil Corp. slashed its head office and field workers by 25 per cent, adding to a litany of cuts announced this week.
The downturn has also made weaker companies targets as better-capitalized rivals seek to grow with crude prices languishing around $50 (U.S.) a barrel.
"The initial thought is, 'Hey, let's cut costs, let's worry about what our objectives are internally.' But the next step after that is, 'Okay, what are we going to do about keeping production growing?'" said David Neuhauser, managing director at investment firm Livermore Partners.
"And that's when you have to become the aggressor when you have the balance sheet to do so."
Global benchmark Brent oil averaged about $51 a barrel in the quarter and Western Canada Select oil sands crude fetched an average of roughly $33 – the lowest in more than six years, according to Suncor.
Analysts have said the sustained drop in commodity prices has made oil sands acquisitions more attractive relative to building brand new projects from scratch.
Canadian Oil Sands' board has urged investors to spurn Suncor's offer, accusing it of exploiting inside information about the Syncrude Canada Ltd. operation to make an opportunistic bid at the bottom of the market.
The largest owner of the Syncrude plant posted a loss of $174-million (Canadian) in the third quarter. Its cash flow was nearly three-quarters lower as the selling price for Syncrude's synthetic oil fell by 41 per cent from a year earlier.
The company reiterated its rejection of Suncor's bid, saying that it "substantially undervalues" its operations and prospects.
"Canadian Oil Sands is demonstrating its ability to weather this period of low oil prices and even a modest improvement in oil prices will generate robust expansion of cash flow," CEO Ryan Kubik said in a statement.
On Thursday, Suncor's Mr. Williams questioned that claim. He touted stronger performance at the company's oil sands upgrading operations this year compared to Syncrude and said the company was better equipped to handle a prolonged stretch of weak crude prices.
"Our view is that since we made the offer, crude prices have come down, and most of the commentators now believe it's lower for longer," he said.
Indeed, Cenovus Energy Inc. CEO Brian Ferguson said in an interview that the company is now bracing for low oil prices through 2017.
Staff layoffs in the second half of this year total 700, the company said Thursday, up from a July expectation of 300 to 400. It now expects annual cost savings of $400-million.
The company reported a 55-per-cent drop in cash flow and an operating loss, but it finished the quarter with $4.4-billion in cash. Mr. Ferguson declined to say whether the company was examining specific asset sales or acquisitions, only that it is his job to look for ways to boost value for shareholders.
Some analysts have suggested it could be a likely takeover candidate as industry conditions have deteriorated. On Thursday, however, Suncor's Mr. Williams quashed speculation it was eyeing its rival, saying Cenovus's reserves offered Suncor little value.