Suncor CEO predicts slow recovery for sector from pandemic demand crunch
CALGARY - Consumer demand for fuel is growing slightly after a sudden decline due to measures to deal with the COVID-19 pandemic but the CEO of Suncor Energy Inc. says he doesn't expect a full recovery for his company or the Canadian energy sector until at least 2022.
The Calgary-based oilsands and refining giant surprised analysts by cutting its quarterly dividend by 55% to 21 cents per share as it reported a first-quarter net loss of $3.525 billion on Tuesday.
It had 18 years of consecutive annual dividend increases, with the latest announced in February.
The cut was necessary as the company resets its target of breaking even at a West Texas Intermediate price of US$35 per barrel, down from the previous mark of US$45, said CEO Mark Little on a conference call on Wednesday.
“Although we expect the crude market to substantially recover by 2022, the risk of an extended period of economic uncertainty, translated into weaker commodity prices and higher volatility, remains possible,” he said.
“In the second quarter, we know our industry is being challenged by ... a significant supply and demand imbalance which has resulted in the largest collapse in crude prices ever. These market conditions require decisive leadership and action.”
The company, which sells fuel across Canada through its Petro-Canada network, has seen a reduction in demand of 50% for gasoline, 70% for jet fuel and 20% for diesel, Little said.
As North American oil storage fills to near capacity, any rebound in upstream oil production must be led by recovery in the downstream and that means it depends on when governments reopen the economy and consumers feel confident about travelling again, Little said.
There will be further delays as the high level of crude inventories is drawn down, he added.
Chief financial officer Alister Cowan said on the call he expects that Suncor's gross debt of about $20 billion will grow by $2 billion or $3 billion this year, but the company will break even on a cash flow basis in 2021.
In a report, analyst Michael Dunn of Stifel FirstEnergy estimated the dividend cut will save Suncor about $1.56 billion per year.
“While not altogether surprising, the cut was not a sure thing given Suncor's liquidity and track record of dividend increases. We agree with the move,” he said.
Suncor's capital spending plan for 2020 is being cut to $3.8 billion, a further reduction of $400 million compared with its recent guidance and down $1.9 billion or about one-third compared with its original 2020 plan.
It added it intends to cut operating costs by $1 billion or 10% this year compared with 2019 levels.
Suncor registered an impairment charge of $1.38 billion on its 54.1% share of the Fort Hills oilsands mine it operates and $422 million against its share of the East Coast offshore White Rose and Terra Nova assets.
Suncor also recorded a $397-million after-tax inventory writedown, as well as a $1-billion unrealized after-tax foreign exchange loss on U.S. dollar denominated debt.
Due to lower demand for refined products, Suncor is reducing its outlook for refinery throughput to between 390,000 and 420,000 barrels per day from the previous goal of between 440,000 and 460,000 bpd.