11/09/2011 09:48 EST | Updated 01/09/2012 05:12 EST

Suncor Energy to spend $7.5 billion in 2012, boost crude production

CALGARY - Suncor Energy Inc. shares slipped Wednesday — a rough day over all on the markets — after it reported 2012 capital spending and production targets that were roughly in line with expectations.

The stock closed down $1.85, or about 5.6 per cent, to $31.44 on the Toronto Stock Exchange in a broadly negative trading session hurt by investor fears of European debt woes. The energy index was down four per cent.

"I think the delta, or the difference, between Suncor and the group on balance is really maybe just a little bit lower production than perhaps the Street was thinking on average," said Randy Ollenberger, an analyst at BMO Capital Markets.

However, it's more likely investors are moving funds out of the energy sector, and Suncor happens to be the largest of the bunch, Ollenberger added.

Calgary-based Suncor (TSX:SU) signalled to investors on its third-quarter conference call last week that it would exercise restraint in its 2012 capital plans with a budget of around $7.5 billion.

Late Tuesday, Suncor confirmed that figure, up from last year's $6.7 billion, but lower than some may have expected given how flush with cash Canada's largest oil and gas company is.

"Planned capital investments in 2012 are in line with our strategy to manage long-term growth in a disciplined manner and invest our available cash flow where we can maximize return to our investors," chief executive Rick George said in a statement.

"We will continue to focus on maintaining a strong balance sheet and based on current forward pricing, we would expect to fund next year's capital plan entirely from internal cash flow."

About half of Suncor's spending will go toward growth projects, with 60 per cent of that funding oilsands development. The company will also invest in its offshore operations on Canada's East Coast and in the North Sea.

Total production next year is expected to average 530,000 to 580,000 barrels per day. That includes a 12 per cent increase in oilsands production and a 30 per cent increase in synthetic crude oil production.

In its financial report last week, Suncor said record third-quarter oilsands production helped the company generate $1.29 billion in net profits. That was up from $1.22 billion in the same 2010 period.

Operating revenues after royalties soared to nearly $3.1 billion from just over $2.1 billion a year ago.

"Overall, we will see Suncor deliver meaningful growth in 2012, while delivering substantial free cash flow," wrote CIBC World Markets analyst Andrew Potter in a note to clients.

He estimated Suncor can generate $3 billion in cash flow, with U.S. benchmark West Texas Intermediate oil prices at US$92.50 per barrel and North Sea Brent crude prices at US$107.50 per barrel.

Suncor expects it will begin spending capital to develop its dormant Fort Hills and Joslyn mines, and its Voyageur upgrader. All thee are part of a joint-venture inked a year ago with French energy giant Total S.A.'s Canadian division.

No production is assumed next year in Libya, from which Suncor pulled its employees when civil war erupted earlier this year. The long-time ruler of the North African country, Moammar Gadhafi, has been killed. George has called that development "encouraging," but Suncor has not yet signalled intentions to resume operations in Libya.

Suncor became Canada's largest energy company after a 2009 merger with Petro-Canada and is the largest operator in the Alberta oilsands.