Business

Suncor cuts spending by $400M as oilpatch rides out low oil

Suncor Energy is trimming its spending plans for this year by a further $400 million, the latest Canadian company to make cuts in the face of oil below $50 US a barrel.

Oilpatch cuts jobs, capital spending as oil lingers below $50

The Suncor Refinery in Edmonton is seen in April 2014. Suncor's refining and other 'downstream' operations helped keep it profitable. (Jason Franson/Canadian Press)

Suncor Energy is trimming its spending plans for this year by a further $400 million, the latest Canadian company to make cuts in the face of oil below $50 US a barrel.

Cenovus announced job reductions and a dividend cut on Thursday and Shell said it cut 6,500 jobs worldwide.

A year ago West Texas Intermediate oil was at $93.70 US a barrel, now it's trading at $48.60. Western Canada Select, an oilsands contract is at $33.01 today, more than $15 less than the main North American contract.

The glut of oil that has caused the price plunge looks set to remain, with U.S. shale producers ready to turn on the taps and Iraq pumping more oil.

Painful cuts are likely to continue in the oilpatch, as companies face these low prices while making their plans for winter drilling, traditionally their busiest season.

Suncor still profitable

Calgary-based Suncor said its capital spending for the year will be $5.8 billion to $6.4 billion, a reduction from its estimate in January of $6.2 billion to $6.8 billion.

It has already cut 1,200 jobs.

But the company has been able to stay profitable, with net second quarter earnings of $729 million, compared to $211 million a year earlier, when it faced an impairment charge.

It also is increasing its production outlook by 10,000 barrels a day to 550,000 to 595,000 barrels a day, but says it has reduced its per barrel reduction costs.

The  $13.5-billion Fort Hills oilsands project remains on track to start producing oil in late 2017. Operating earnings, which strip out the effects of unusual items, were $906 million for the quarter, versus $1.14 billion during the same 2014 period.

"Suncor beat expectations due to very strong results from their downstream operations" according to Martin Pelletier, portfolio manager at TriVest Wealth.

"The gain in Suncor earnings can almost be attributed to the gain in U.S. foreign exchange," he said.

Pelletier expects more capital reductions, more job cuts and even some dividend cuts – a more serious development for investors – in the second half of the year.

But he says well-managed companies are already positioned to ride out low oil prices.

"Many companies are trading below 2008 financial crisis levels," he told CBC News. "We think there is tremendous value opportunity for investors in the energy sector...If you own quality companies that are going to withstand in midterm the volatility in oil prices and are going to be around in 10 years."

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