Amid doom-and-gloom news in Alberta about pipeline bottlenecks and oil-price differentials, Calgary-based Suncor Energy Inc. has doubled down on the oilsands, buying Mocal Energy Ltd.’s 5% stake in Syncrude Canada Ltd.’s oilsands operations for $920 million. The move comes on top of the $937 million Suncor spent on Murphy Oil Corp.’s 5% stake in Syncrude in April 2016 and the $6.6 billion Suncor paid for Canadian Oil Sands Ltd.’s 37% stake in February 2016. Suncor now owns almost 56% of the bitumen-producing behemoth.
In justifying the move, which will add 17,500 barrels a day of light sweet synthetic crude to Suncor’s production, CEO Steve Williams cited his “confidence in the long-term future of the oilsands and the high quality and value of the Syncrude asset.”
“What?” you might want to ask Mr. Williams. “With growing carbon taxes and the obstructionist policies of the British Columbia government and the City of Burnaby over Kinder Morgan Inc.’s Trans Mountain pipeline expansion, doesn’t the long-term future of the oilsands look terrible? How can you be confident when the price differential between West Texas intermediate and Western Canadian select crude recently exceeded US$30 a barrel?”
Apparently, Williams knows something a lot of people are missing. Suncor generated record revenue from operations of $3 billion in the final quarter of last year, supported by a strong performance from the company’s oilsands operations. Net earnings for the quarter came in at 84¢ a share, up from 32¢ a share in the corresponding period a year prior, and Suncor continues to drive down expenses. Its cash operating costs in the oilsands fell to $24.20 a barrel for the quarter.
Suncor is just one example of the healthy numbers coming out of Alberta’s oilpatch. Oilsands operators’ efficiency today is amazing – as is how they’re able to make money with oil at US$50 a barrel.
These are not the high-cost producers of 10 years ago that many predicted would get priced out of the market. Today’s producers have survived the downturn and are set up for some strong years, with or without another pipeline.
That’s not to say things wouldn’t be better for the industry with another pipeline. The biggest prize would be TransCanada Corp.’s Keystone XL, which would move Alberta’s heavy oil directly to the U.S. Gulf Coast refineries that are tooled up for it and are thirsty as Venezuelan supplies dry up. That pipeline remains in limbo.
Then, there’s Trans Mountain, the most scrutinized pipeline in history. B.C. Premier John Horgan is trying to stop the pipeline, which has federal approval and has been judged to be in the national interest. Prime Minister Justin Trudeau recently noted the irony of Horgan’s move: blocking Trans Mountain is so politically divisive, the move will slow progress on climate change.
“By blocking the Kinder Morgan pipeline, [Horgan] is putting at risk the national climate change plan because Alberta will not be able to stay on if the pipeline doesn’t go through,” Trudeau told the National Observer. “And you will get politicians picking and choosing parts of the national plan they don’t like. If we don’t continue to stand strongly in the national interest, the things people don’t like within the agreement, which is filled with compromises, [means there will be] no agreement – and no capacity to reach our climate targets.”
Trudeau and his relevant ministers must ensure this message gets through and Trans Mountain gets built.
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