AFP: Oil sands still viable at US$60 a barrel: Suncor
CALGARY -- Suncor Energy Inc., which last week rolled out massive spending cuts because of the credit crisis and slumping oil prices, said it will earn C$28 for every barrel of oil it produces should crude trade at US$60/barrel and Canadian dollar hover around US78 cents.
Under the same scenario, Suncor's cash flow netback would be about C$34 a barrel. At US$60 per barrel of oil, the realized price in Canadian dollars is $77. Then, on each barrel of oil, Suncor takes a $4 discount because of the quality of its crude, pays $4 in royalties, hands over $35 in operating costs, and then eats about $6 in non-cash charges.
"This is not a case of us not being able to make money at [US$60 per barrel]. There seems to be a lot of misunderstandings and panic out there in the market on that," said Rick George, the company's chief executive in a conference call discussing Suncor's third quarter earnings on Wednesday. "The advantage that we have in the oil sands business on that is no decline curves – and you're going to see some big decline curves, I believe, worldwide – and no exploration costs."
As the market teeters, the market has become increasingly concerned about the viability of Canada's oil sands, which may hold 175 million barrels of oil, and are estimated to be the largest oil reserves outside Saudi Arabia. Indeed, a number of delays have already been announced, including Suncor's decision pull back on spending, which will push back the startup of its third upgrader by about a year, to 2012.
Suncor's cash flow from operations – a key number since the company plans to fund projects out of cash flow as the market crushes the availability of new debt – rang in at $1.346-billion in the third quarter, compared with $957-million in the same period last year.
The oil sands giant earned $815-million, or 87 cents per share, compared with $627-million, or 68 cents per share in the same quarter last year. Knocking out the impact of foreign exchange on the company's U.S. dollar denominated long-term debt, as well as project start-up costs, Suncor earned $971-million, or $1.04 per share, up from $538-million, or 58 cents per share, last year.
