New Suncor CEO faces environmental, cost pressures

Incoming Suncor Energy Inc. chief executive officer Steve Williams will face two major challenges when he takes over from Rick George in the spring, but finding ways for the energy giant to grow isn't one of them.

Mr. George and Mr. Williams have already worked together to sketch out a 10-year growth strategy with the company's extensive properties. That gives Suncor an advantage over its competitors who must continue to explore for new pools of oil and gas to replace their depleting reserves.

Now the job for Mr. Williams will be to contain growing cost pressures in the oil sands business to boost profits along with production growth. The executive must also defend the record of an industry increasingly under attack by environmental groups and caught in political battles.

"Suncor's growth opportunities are largely locked in and it is largely a question of execution right now," said Andrew Leach, a professor of natural resources, energy, and environment at the Alberta School of Business at the University of Alberta. "The key challenge to their value is going to be cost inflation in the oil sands."

Sharply rising costs for everything from labour, equipment and infrastructure are a challenge facing natural resource companies across North America. The problem is particularly acute in the oil sands, where rapidly growing projects are competing for the same pool of workers and supplies. To keep costs down, Suncor must ensure its oil sands production facilities run smoothly.

"Steve is a manufacturing and refinery guy," and oil sands production increasingly depends on these skills, said former Suncor executive Neil Camarta. Mr. Williams has got vision and "a strong performance ethic," and a good sense of humour.

When asked on Thursday about Suncor's challenges, Mr. Williams said: "We have some things to get right in terms of the reliability of the facilities."

Mr. Williams, 55, has spent a decade at Suncor, Canada's largest oil company, and has served as its chief operating officer for the last five years. This experience will help him as he takes greater control over finances and projects. Still, leading Suncor comes with great pressure.

"You are in the limelight," said Rob Lauzon, a senior fund manager at Middlefield Capital Corp. "It is the go-to stock of all of the world for exposure to Canadian oil … You are in the spotlight of all major investors across the world that are focused on energy whether they are European, U.S., or Canadian."

Oil sands executives have to defend their financial, environmental, and social record more vigorously than most Canadian companies because of the fierce opposition facing the industry. Suncor is a prime target when detractors square off against Alberta's oil sands.

Mr. Williams is expected to put a different face on the company's leadership, because he is more inclined to be talkative and to articulate his views more, while Mr. George, who is known for his exploration and production expertise, tends to be more quiet.

Suncor is a pioneer in the oil sands, and Mr. George is widely applauded for its success. Suncor is sitting on decades worth of bitumen and sporting a healthy balance sheet. Its expansion projects are mapped out.

The company is depending on both new mining projects and steam-assisted gravity drainage (SAGD) efforts to expand production. It has been mining bitumen for decades, and investors hope this experience will help mitigate the difficulties tied to launching mining projects. Its SAGD projects, however, come with more concerns because SAGD is still a relatively new extraction technique.

"That's definitely an area where over the next two to three years people are really going to want to see some success in terms of SAGD growth," Garey Aitken, the chief investment officer at Bissett Investment Management in Calgary, said.

Suncor transformed from a giant Canadian science experiment to a giant Canadian oil company under Rick George. And now Steve Williams has set himself a similar goal: "My challenge has to be to take it up to $100-billion."