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'Hope is not a strategy': Canada's largest oil company braces for rough Q2 from SNL Energy Finance Daily 'Hope is not a strategy': Canada's largest oil company braces for rough Q2 Byline: Gene Laverty Suncor Energy Inc., Canada's largest oil company by revenue, has slowed sales of tar-like bitumen and slashed costs as it deals with the fallout of the coronavirus and a global slump in commodities prices. The Calgary, Alberta-based company has seen demand drop for gasoline in its service regions, and throughput at its refineries could be as much as 35% below nameplate capacity until markets improve. Suncor expects to encounter the worst of the downstream slump in the second quarter, although CEO Mark Little said the company has already seen some recent pickup in demand at its Petro-Canada and Suncor-branded gasoline stations. Suncor said May 5 that it would slash its quarterly cash dividend by 55% to 21.5 Canadian cents effective in June, and it has pared spending to C$400 million below the midpoint of its already-adjusted guidance. After reporting a net loss of C$3.53 billion in the first quarter, the company expected to break even on a cash flow basis by 2021. Little said on a May 6 call to discuss first-quarter results that Suncor will continue to adapt its operations to the new financial realities of the energy industry. "Financial health and resilience are maintained by taking actions which are measured, prudent and proactive," Little said. "As we have consistently stated, hope is not a strategy." One of the places the company has tightened expenses is at its Fort Hills oil sands facility, where it has reduced operations to "one, fully utilized mine train," Little said. The decision to slow production at Fort Hills, where Suncor is the majority owner and operates the site for partners Teck Corp. and Total SA, will pare its operating costs by about C$200 million and its capital spending by about C$100 million in 2020, Little said. Alberta government-imposed production curtailments had created inefficiencies at the operation throughout 2019, which were exacerbated by market conditions this year. Production has been slashed at the Suncor-operated Fort Hills oil sands mine, which the company says had been operating inefficiently before the current commodities price crisis.Source: Suncor Energy Inc. "We essentially ran it at about 75% utilization because of the constraints from the curtailment," Little said. "In this environment, you cannot run assets inefficiently, so we found in that particular case that it was much easier for us to shut down one train. That is why we keep saying we are running one train fully utilized very efficiently and then shed the costs with the other train where [we] can only get essentially half productivity for it." On May 5, Suncor reported an operating loss of C$309 million, or 20 Canadian cents per share, for the first quarter, compared to operating earnings of C$1.21 billion, or 77 cents per share, for the prior-year quarter. The S&P Global Market Intelligence consensus normalized EPS estimate for the first quarter was a loss of 25 cents per share. Suncor reported a net loss of C$3.53 billion for the first quarter, compared to net earnings of C$1.47 billion in the prior-year quarter. |
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