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Suncor shares rise on dividend hike, share buyback, earnings beat

CALGARY - Suncor Energy Inc. expects to be shielded from swings in oil prices well into the foreseeable future, despite problems the industry has been having in getting its crude to the most lucrative markets, CEO Steve Williams said Tuesday.

Like most of its peers in the oilsands, Suncor is eager for pipelines to be built to the east, west and south so that its oil can be sold in new markets.

However, Williams said delays in getting those projects built aren't much of a problem for Suncor, as it has its own refineries to act as a buffer and a plan to ship crude to its Montreal refinery by rail.

"We have adequate access to market right now," Williams said following his company's annual meeting.

"We have adequate access for a number of years."

The head of Canada's biggest energy company made his remarks a day after Suncor (TSX:SU) hiked its dividend 54 per cent to 20 cents per share, announced a $2-billion share buyback and delivered first-quarter operating earnings that beat expectations.

Suncor's shares closed up $1.77 or nearly six per cent at $31.41 on the Toronto Stock Exchange.

Chief financial officer Bart Demosky told analysts on a conference call Tuesday that returning more cash will remain a priority.

"Dividends will be reliable. They'll be sustainable. They will be meaningful in relation to the market and they're going to be competitive," he said.

"The market should expect (dividends) to grow with our earnings and cash flow."

Late Monday, Suncor posted operating earnings that handily beat analyst expectations.

It recorded profits of $1.37 billion, or 90 cents per share — well above the 75 cents per share analysts polled by Thomson Reuters had been expecting. A year earlier, its operating earnings were $1.32 billion, or 84 cents per share.

Suncor's oilsands production averaged 357,800 barrels per day in the first three months of the year, a big increase from the 305,700 it churned out a year earlier as its steam-driven Firebag project ramped up production.

Suncor is planning a series of low-cost projects over the next three to four years to boost production by about 100,000 barrels per day, in part by making changes to existing infrastructure.

The price gap between heavy Canadian crude and the lighter U.S. benchmark has caused headaches for many oilsands producers. The crux of the problem has been a lack of adequate pipeline capacity.

Demosky said that situation is likely to persist for some time.

"This extreme cycling of crude differentials has become the norm in Western Canada and we fully expect it to continue until such time as supply, demand and takeaway capacity are in balance, which is likely to take several years," he said on a conference call with analysts.

But companies that produce oil as well as refine it — including Suncor — are at an advantage, as it means a cheaper raw product to run through their refineries.

Suncor's refining business brought in $782 million in profits in the quarter — a record.

"Suncor's integrated business model buffers us against the unpredictable market swings," said Demosky.

Suncor aims to start sending between 20,000 and 40,000 barrels of crude per day to its Montreal refinery using rail — an option some Canadian oil producers have been using as a stop gap — some time later this year.

Longer term, Suncor is backing both TransCanada Corp.'s (TSX:TRP) Energy East pipeline proposal and Enbridge Inc.'s (TSX:ENB) Line 9 reversal as a means to bring western crude to Montreal by pipeline.

It may also look at reviving a shelved project to add a coker to its Montreal refinery so that tar-like oilsands crude can be processed there.

Since much of the work has already been done on the Montreal coker and equipment is sitting at the site, Suncor can start up that project "reasonably quickly" once its board decides gives it the go-ahead. A decision could happen late this year or early next year.

About a month ago, Suncor said it was scrapping its Voyageur oilsands upgrader because shifting market conditions challenged its economics.

Burgeoning production of light oil from regions such as North Dakota means it no longer makes economic sense to invest billions into a facility to convert heavy oilsands crude into a lighter product refineries can handle.

Suncor took a $1.49-billion writedown on Voyageur in the fourth quarter of 2012 and another $127 million in the first quarter of 2013.

The Voyageur upgrader was part of a $1.75-billion partnership inked between Suncor and French energy giant Total S.A. in late 2010.

A decision on whether to go ahead with the companies' jointly-owned Fort Hills mine is expected later this year, while it's not known when the fate of their Joslyn oilsands mine will be decided.

Earlier this month, Suncor sold the bulk of its Western Canadian natural gas business to a British-Qatari partnership for $1 billion.

The deal with Britain's Centrica PLC and Qatar Petroleum International includes conventional properties throughout Alberta, northeastern British Columbia and southern Saskatchewan.

In addition to its vast oilsands holdings, Suncor also has assets in the U.K. North Sea, off Canada's East Coast, four refineries and a chain of Petro-Canada-branded gas stations.

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