Suncor president and CEO Steve Williams addresses the company's annual meeting in Calgary on Wednesday.Jeff McIntosh/The Canadian Press
Canada’s biggest oil sands producers are abandoning growth as new pipeline projects stall, heralding an era of slower expansion in the world’s third-largest crude deposit.
Suncor Energy Inc. is the latest major producer to forsake big-ticket investments, with chief executive Steve Williams saying the company won’t sink cash into new oil sands projects without progress on pipelines.
“We don’t see major investment in the Canadian oil sands until we see an improvement in the competitive position of the industry,” he told analysts on a conference call Wednesday.
The company needs “to see shovels in the ground and pipelines being built” before contemplating major new investments, he added.
The comments by Canada’s biggest oil sands producer underline growing pessimism about the viability of new investments in one of the world’s priciest extraction zones as shipping constraints show few signs of easing.
Calgary-based Suncor had already sworn off megaprojects after crude’s collapse prompted questions about the cost and economics of the company’s $17-billion Fort Hills mine.
But severe price discounts faced by oil sands companies are making it harder to justify multibillion-dollar expansions, and some executives are pledging to reward long-suffering shareholders instead.
Suncor reiterated Wednesday that it would prioritize increasing dividends and share repurchases, while limiting spending to several smaller projects designed to lift margins at its sprawling operations surrounding Fort McMurray, Alta.
The company bought back $1.85-billion in stock over the past 12 months and said on Tuesday that it would repurchase up to $2.15-billion in shares in the next year starting May 4.
Rival Imperial Oil Ltd. has also expanded its stock-buyback program, enabling it to repurchase up to 5 per cent of the outstanding float from 3 per cent through June, 2018.
Last week, CEO Rich Kruger told media that Canada is not competitive for major new energy investments. The company is still awaiting a decision on a multibillion-dollar oil sands expansion called Aspen more than four years after initially seeking approvals, he said.
While the industry frets about impacts on spending levels and future growth, delays to proposed pipelines are beginning to take a larger toll on existing facilities. That has forced producers to curtail output.
Imperial, majority-owned by Exxon Mobil Corp., said its production lagged in the three months ended March 31, partly because of unspecified shipping constraints that affected about 12,000 barrels a day.
Similarly, pipeline issues earlier this year forced Cenovus Energy Inc. to dial back production at its steam-driven plants, although the company has since restored output to normal rates.
The industry is awaiting clarity on the fate of Enbridge Inc.’s proposed Line 3 to the U.S. Midwest and Kinder Morgan Inc.’s $7.4-billion Trans Mountain expansion to Canada’s West Coast.
Both projects would vastly expand markets for Alberta’s landlocked crude, but each faces opposition from environmentalists and First Nations who argue they would undermine Canada’s climate-agreement commitments.
Houston-based Kinder Morgan has threatened to walk away from Trans Mountain by June 1 unless there is a deal that ensures smooth construction through British Columbia. Federal approvals of the project have also been challenged in court.
Meanwhile, Enbridge’s Line 3 was dealt a setback after a Minnesota judge rejected the company’s preferred route through the state, a finding the company strenuously objects to. The non-binding ruling will inform a final decision by state regulators expected in June.
Suncor late on Tuesday reported net income for the first quarter of $789-million or 48 cents per share versus a year-ago profit of $1.4-billion or 81 cents.
The company said total production fell to 689,400 barrels of oil equivalent per day from 725,100 boe/d a year ago, with volumes affected by outages at the Syncrude bitumen plant and at its base operations.