Varcoe: 'A new Suncor' with plans to grow production and whittle down costs

During a blunt assessment of the company’s fortunes in recent years, CEO Rich Kruger, who joined the company in April 2023, said Suncor required a new attitude

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A healthy serving of meat and potatoes, a quote from Jerry Maguire, and a reference to Animal Farm.

The latest business update by Suncor Energy featured all of that and more as the company laid out its plans to grow production by 100,000 barrels per day (bpd) within three years while whittling down costs.

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During a call with analysts on Tuesday, Suncor CEO Rich Kruger vowed to continue the mission to make the Calgary-based company more efficient and competitive.

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The integrated oil producer updated its strategy for the coming years in what Kruger dubbed an “early morning serving of meat and potatoes.”

During a blunt assessment of the company’s fortunes in recent years, Kruger, who joined the company in April 2023, said Suncor required a new attitude.

“Going back in recent history, Suncor needed to change,” he said during the update.

“After years of being labelled big and bloated, we have slashed costs, completed a major streamlining and refocusing of our above field organization.

“We’ve also played checkers versus chess, strategically upgrading our portfolio, consolidating ownership at Fort Hills (oilsands mine) and shedding non-core assets.”

It has been a time of sweeping change at one of the country’s largest oil and gas producers after an activist U.S. investor targeted the company in 2022 over its weak share price performance and a number of serious injuries and fatalities.

In October 2022, Suncor sold off its renewable energy portfolio to Canadian Utilities, and later unloaded its United Kingdom exploration and production assets, including North Sea properties, to Equinor for $1.2 billion.

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Kruger, the former CEO of Imperial Oil, came out of retirement last year to take over Suncor with a mandate to help turn around the company’s performance. It cut about 1,800 positions last year in a move projected to save $450 million annually.

During the first three months of this year, Suncor produced a record 835,000 bpd from its upstream operations and posted net earnings of $1.6 billion.

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Kruger said the company has adopted a new strategy, structure and culture.

“Today’s Suncor is increasingly a new Suncor. But I know what you’re thinking. In the infamous words of Jerry Maguire, ‘Show me the money,’ or in our case, show you the proof points,” he said.

“Let’s look back at the last 12 months. After years of unacceptable results, 2023 was the safest year in company history, including no one getting seriously hurt for the first time since 2015.”

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The company also said Tuesday it has increased its share buybacks to 75 per cent of free funds flows, starting in the April-to-June period.

Suncor’s share price has climbed 42 per cent over the past year, closing Tuesday at $56.03 on the Toronto Stock Exchange, up $1.46. During the same period, the S&P/TSX Capped Energy Index has risen about 30 per cent.

It’s been a strong bounce back for Suncor since 2022, when the company faced a barrage of questions about its performance, missed forecasts and poor safety record.

In April 2022, activist investor Elliott Investment Management called for an overhaul of the company and changes at the top.

Several months after CEO Mark Little left in July 2022, Kruger was brought on board to chart a new course.

Mark Little
Mark Little, former Suncor Energy CEO, during a tour of the Fort Hills oilsands project on Monday, September 10, 2018. Vincent McDermott/Postmedia file

Laura Lau, chief investment officer with Brompton Group, which holds stock in Suncor, said Kruger has been checking off the boxes of what the company needed to do and brought a sharper focus to Suncor’s strategy.

“He has done this actually much quicker than I had expected. But it’s still a big ship to turn around,” Lau said, noting strong oil prices have helped the effort.

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“Everyone loves a good turnaround story, but it doesn’t always happen … So far, he is exceeding expectations.”

Analysts say Kruger and the management team have focused on improving safety, streamlining operations and lowering costs.

Now, it’s planning for future growth of 100,000 bpd between last year and 2026 across its assets. It comes as other oilsands operators such as Cenovus Energy and Canadian Natural Resources have mapped out ambitions to increase their production in the coming years.

With the startup this month of the Trans Mountain expansion project, producers are now able to outline output growth without facing transportation constraints, said analyst Phil Skolnick with Eight Capital.

During the update, Suncor detailed its efforts to lower its break-even costs by $10 a barrel for West Texas Intermediate crude, double its previous target.

The company mentioned several cost-savings measures, such as adopting larger autonomous haul trucks at its oilsands mines, “high-grading” its Petro-Canada chain and improving its thermal oilsands operations at the Firebag property.

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The single biggest driver will involve adding upstream production.

At this point, Suncor has no plans for significant spending on replacing the long-term bitumen supply for its base plant within the next five years.

Suncor offices
The Suncor Energy Centre building in downtown Calgary. Photo by Azin Ghaffari /Postmedia Network

Kruger also touted the company’s integrated business operations and its downstream operations. During the first quarter, refinery crude throughput increased to 455,000 bpd and refinery utilization hit 98 per cent.

“You hear us and others reference our integrated business model and the value it adds,” he said.

“However, all integration is not created equal. What we will say today is like George Orwell’s novel, Animal Farm — Suncor’s integration is more equal.”

Part of the 100,000 bpd of increased production by 2026 has already come from reliability improvements at Firebag, Skolnick noted. He expects more output to come from its Fort Hills oilsands mine and off the East Coast of Canada.

While Suncor has more work to do, Kruger has the business back on track, he added.

“There are challenges, but I just feel like they have the plan in place now,” said Skolnick.

“And they have the organization lined up.”

Chris Varcoe is a Calgary Herald columnist.

[email protected]

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