Suncor Energy Inc. has taken a writedown of nearly $1.5-billion on its Voyageur project, a massive oil sands plant that is now at serious risk of cancellation.
And in an additional potential blow, Suncor faces a $1.2-billion tax bill, which it is disputing.
The $11.6-billion Voyageur upgrader is designed to process 200,000 barrels per day of heavy oil sands bitumen into a lighter oil. The project was 15 per cent built, and Suncor had already spent $3.5-billion, when Suncor halted work in 2009.
Though Voyageur has not yet been abandoned, the writedown was accompanied by pessimistic commentary in Suncor's fourth-quarter results, which were released Tuesday evening.
"Suncor's view is that the economic outlook for the Voyageur upgrader project is challenged," the company said. It added: "The partners have been considering options for the project, including the implications of cancellation or indefinite deferral."
A decision is expected by the end of March, Suncor said. The company will also, with its partner Total, make a decision on whether to build its Fort Hills oil sands mine in the second half of this year. Joslyn, the third project that forms the partnership with Total, appears to be less certain, with Suncor giving no timeline for a decision.
"Suncor plans to provide an update on the targeted timing for a sanction decision on the Joslyn project when available," the company said.
Suncor may also face a $1.2-billion tax bill. It said in a statement that it has "received a proposal letter from the Canada Revenue Agency (CRA) relating to the income tax treatment of the realized losses in 2007 on the settlement of the Buzzard derivative contracts." Though Suncor "strongly disagrees with the CRA's position" and "firmly believes it will be able to successfully defend its original filing position," the company warned that it may be forced to pay half the amount – $600-million – "until the dispute is resolved."
The writedown on Voyageur plunged Suncor to a quarterly loss of $562-million, or 37 cents per share. The company reported operating earnings of $1-billion, down from the $1.3-billion it averaged in the previous three quarters. Cash flow fell to $2.24-billion from $2.65-billion in the fourth quarter of 2011.
The Voyageur writedown also hurt Suncor's return on capital employed, which fell to 7.3 per cent in 2012, down from 13.8 per cent in 2011.
Suncor posted record 2012 oil sands production, but its fourth-quarter company-wide output of 556,500 barrels of oil equivalent per day was down from 576,500 the year before. Oil sands operating costs were nudged down to $38 per barrel down from $39 a year earlier. Though the company is working to resume drilling in Libya, it acknowledged it has faced problems in many of its international operations, including slow recovery from maintenance work at North Sea platforms like Buzzard and Terra Nova.
"Although we are pleased with our underlying cost discipline and performance trends, we know there are areas we need to improve," chief executive Steve Williams said in a statement. "Our reliability at our oil sands upgraders and the delays associated with our Terra Nova planned maintenance were disappointing."
At the same time, the cost of building the fourth stage of its Firebag operations is 15 per cent lower than expected, Suncor said.
The highlight for Suncor lay in refining operations. Strong performance in Edmonton allowed the company to squeeze an additional 5,000 b/d out of its refinery there. Total refined product sales grew to 87,000 cubic metres per day in the fourth quarter of 2012, up from 81,600 the year before. Net earnings at Suncor refineries grew to $2.1-billion in 2012, up from $1.7-billion in 2011, as the company profited from the discounted price of Canadian crude, which provided a cheap refining feedstock.
Those discounts hurt Suncor's average oil sands selling price, however. The company fetched, on average, $77.37 a barrel in the fourth quarter, down from $98.02 the year before.