Suncor wields the axe

Gary Park

for Petroleum News

Suncor Energy, the powerhouse in Alberta’s oil sands, took the knife to its prized dividend at the same time Chief Executive Officer Mark Little issued a warning that recovery of oil demand will “take some time” and happen only “when people can stop self-isolating.”

That has spelled an end to 18 years of growing the company’s quarterly payout, with Little explaining that the 55% cut reflects the decline of crude and fuel consumption “by key sectors of the economy, such as the airline industry.”

He said “uncertainty is very high ... we think there’s going to be some false starts in various economies.”

However, he did note that Suncor is “already beginning to see some strengthening in demand,” with signs of stabilization reflecting the continued shut in of oil production, with Plains All American Pipeline expecting to will reach 3.5 million to 4.5 million barrels per day in May across the U.S. and Canada. The cutback in Canada is estimated at 600,000 bpd.

In lowering its forecast breakeven U.S. benchmark oil price to US$35 a barrel from US$45, Suncor opted to give itself some breathing room by cutting its capital budget for 2020 by C$400 million to C$1.9 billion.

Among Suncor’s oil sands peers, Imperial Oil (69.6% owned by ExxonMobil) Chief Executive Officer Brad Corson said his company is “already beginning to see some strengthening in demand.”

Phil Skolnick, an analyst with Eight Capital, said many U.S. states and other jurisdictions are gradually reopening their economies, pointing to a slow recovery in oil demand this year.

“It is encouraging we are getting increased demand for gasoline right now ... we’ve seen a stabilization in oil prices,” he said.

Suncor reported a first quarter decline of just 3% from a year ago in its output to 700,000 barrels of oil equivalent per day, while its refinery throughput levels in the current quarter is forecast to be 25% to 35% to match demand levels.

The dividend cut, which will save the company C$1.6 billion this year, comes on the heels of its reported first quarter net loss of C$3.5 billion.

Against that backdrop, Raymond James analyst Chris Cox said Suncor’s move is “prudent because they would have been funding the dividend entirely from their balance sheet ... we think it makes a lot more sense not to add debt in this current price environment.”

- GARY PARK