Varco: “New Suncor” plans to increase production and reduce costs

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A healthy serving of meat and potatoes, words by Jerry Maguire and a link to Animal Farm.

Suncor Energy's latest business update revealed all that and more, as the company laid out plans to increase production by 100,000 barrels per day (bpd) over three years while cutting costs.

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

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Kruger called the integrated oil producer's strategy for the coming years “meat and potatoes early in the morning.”

Kruger, who joined the company in April 2023, said Suncor needed a new vision while clearly assessing the company's success in recent years.

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

“After years of being big and bulky, we've cut costs, completed the aforementioned major reorganization and reorientation of our field organization.

“We also played chess and checkers, strategically revamping our portfolio, consolidating ownership in Fort Hills (oil field) and divesting non-core assets.”

It's time for a major shake-up at one of the country's biggest oil and gas producers after an activist US investor targeted the company in 2022 due to poor share price performance and a series of serious injuries and deaths.

In October 2022, Suncor sold its renewable energy portfolio to Canadian utilities and later sold its UK exploration and production assets, including its North Sea facilities, to Equinor for $1.2 billion.

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Kruger, the former CEO of Imperial Oil, retired last year and took over Suncor with a mandate to help turn the company around. It cut about 1,800 positions last year, saving $450 million annually.

In the first three months of this year, Suncor produced a record 835,000 barrels per day from its upstream operations and posted net income of $1.6 billion.

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

“Today's Suncor is increasingly the new Suncor. But I know what you're thinking. Jerry Maguire's 'Show Me the Money' or in our case show you the proof points,” he said.

“Let's take a look at the last 12 months. After years of poor results, 2023 was the safest year in the company's history, including the first time since 2015 that no one was seriously injured.”

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The company also said Tuesday that share buybacks increased free cash flow by 75 percent from the April to June period.

Suncor's share price has risen 42 percent in the past year and was up $1.46 to $56.03 on the Toronto Stock Exchange on Tuesday. During the same period, the S&P/TSX energy cap index rose nearly 30 percent.

It was a strong rebound for Suncor since 2022, when the company faced many questions about its performance, missed forecasts and safety record.

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

Just months after CEO Mark Little left in July 2022, Kruger was brought on board to set a new direction.

Laura Lau Krueger, chief investment officer of Brompton Group, which owns shares in Suncor, said she has been more focused on Suncor's strategy by examining what the company needs to do.

“He did it faster than I expected. But it's still a big ship to turn,” Lau said, noting that strong oil prices have helped the effort.

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“Everyone loves a good story, but it doesn't always happen … So far, it's been exceeding expectations.”

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

It now plans to increase its assets by 100,000 barrels per day from last year to 2026. It comes as other oil sands operators such as Cenovus Energy and Canadian Natural Resources have set ambitions to increase their production in the coming years.

With the launch of the Trans Mountain expansion project this month, producers can now set production growth without facing transportation constraints, said Eight Capital analyst Phil Skolnick.

In the update, Suncor detailed that it is trying to lower the break-even price for West Texas Intermediate to $10 a barrel, more than double the previous target.

The company cited several cost-saving measures, such as using larger autonomous trucks at oil and gas fields, “upgrading” the Petro-Canada chain and improving operations at Firebag-owned thermal oils.

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The single biggest driver involves the addition of upstream manufacturing.

Suncor currently does not plan to incur significant costs to replace the long-term bitumen supply for its main plant within the next five years.

Krueger also highlighted the company's integrated business operations and its downstream operations. In the first quarter, the refinery's crude throughput increased to 455,000 barrels per day and plant utilization was 98%.

“You'll hear us and others refer to our integrated business model and the value it adds,” he said.

“However, not all integrations are the same. What we're going to talk about today is like George Orwell's Animal Farm – Suncor Integration Equals.

Part of the 100,000 b/d increase in production by 2026 was due to improved Firebag reliability, Skolnick noted. It expects more production from its Fort Hills mine and off the Canadian east coast.

Although Suncor had a lot of work to do, Krueger has recovered the business, he added.

“There are challenges, but I feel like they have a plan now,” Skolnik said.

“They streamlined the organization.”

Chris Varco is a columnist for the Calgary Herald.

[email protected]

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