Suncor Energy Inc. has slashed $1-billion from its 2015 budget and will cut roughly 1,000 jobs as it delays a major oil sands project, accelerating the industry's slowdown amid plunging oil prices.
Canada's biggest energy company is holding off on its MacKay River 2 expansion plan in the oil sands, Suncor said Tuesday. The project was scheduled to reach first production in 2017, but will now be delayed by at least a year. Suncor will also pull back on the White Rose expansion effort off Newfoundland and Labrador's coast. It was expected to produce oil in 2018, and it, too, will be delayed by at least a year.
Suncor is joining a parade of producers slashing spending, demonstrating how depressed prices have forced companies to slow down developments and conserve cash. Canadian Natural Resources Ltd. on Monday said it is delaying its Kirby North oil sands expansion project. CNRL had planned to begin producing oil there in late 2016. Royal Dutch Shell PLC last week said it is cutting hundreds of jobs at another major oil sands project.
Suncor now expects its capital budget to be between $6.2-billion and $6.8-billion in 2015, down $1-billion from its original estimate released Nov. 18.
The company on Tuesday also said it will trim between $600-million to $800-million in operating expenses over the next two years.
"Cost management has been an ongoing focus, with successful efforts to reduce both capital and operating costs well under way before the decline in oil prices," Steve Williams, Suncor chief executive officer, said in a statement. "However, in today's low crude price environment, it's essential we accelerate this work. Today's spending reductions are consistent with our commitment to spend within our means and maintain a strong balance sheet. We will monitor the pricing environment and take further action as required."
Oil traded at around $46 (U.S.) a barrel Tuesday, well below the $74.55 level it was at the day Suncor released its original budget for 2015. At least eight Canadian companies, including CNRL and Suncor, have revised their 2015 budgets since November.
Suncor intends to push forward with its largely undeveloped Fort Hills mine, despite the slide in oil prices. Its offshore work at Hebron will also proceed as planned, to take "full advantage of the current economic environment," Suncor said in its statement.
MacKay River 2 and the White Rose extension – the two delayed projects – have not yet been sanctioned.
The MacKay River 2 project is expected to produce between 20,000 and 25,000 barrels of oil a day when it is complete. Suncor's share of the White Rose expansion is expected to be about 8,000 barrels of oil per day, according to Sneh Seetal, a spokeswoman for the company.
The cuts to the White Rose extension were expected, as the company's partner in the project, Husky Energy Inc., had already served notice it would defer spending, said Chris Cox, an analyst at Raymond James. Shelving MacKay River 2 does not have any impact on the company's short-term production outlook, as it is a long-term venture that had yet to be sanctioned, Mr. Cox said.
The reduction in both capital expenditures and operating expenses will help to strengthen Suncor's finances as oil markets remain weak.
"The big thing everyone's been focusing on is free cash flow and the ability to fund [capital expenditure]," Mr. Cox said. "They now have less [capital expenditure] and a greater ability to fund that [capital expenditure]."
Suncor said contract employees will be the hardest hit by its plans to cut jobs. Suncor itself employs roughly 14,000 people, Ms. Seetal said. She did not know how many layoffs will happen within Suncor, but did say the layoffs will be distributed across departments.
Ken Smith, president of Unifor Local 707A, representing roughly 4,000 Suncor workers, said so far none of the unionized jobs are affected.
"One thousand jobs, that's pretty darn significant for any employer," Mr. Smith said from his Fort McMurray office. "This is not a good omen for Fort McMurray as a whole. We're going to have rough times ahead. There's going to be people in limbo. It puts everything up in the air."
Suncor did not reduce its production expectations for 2015. It predicts it will churn out between 540,000 barrels of oil equivalent a day and 585,000 barrels of oil equivalent a day this year.