Suncor to sell billions in assets

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Stock prices are delayed 15 minutes. Source: Globe and Mail.

Suncor Energy Inc. plans to sell $2- to $4-billion in assets in 2010, as it works to trim its debt load and narrow its focus.

The company will divest 30 percent of its natural gas assets and sell off some of its minority oil holdings in the North Sea.

And, company chief executive officer Rick George said, the newly expanded Suncor will proceed with caution in the oil sands, spending less next year than its cash-flow, in part out of fears that a massive capital program would spark “a firestorm of inflation up north,” much like the industry saw in recent years.

Suncor reported third-quarter profit of $929 million, or 74 cents per share, in its first quarterly earnings report since merging with Petro-Canada.

That compares with profit of $815 million, or 87 cents per share, in the year-ago period.

But Suncor's operating earnings plunged in the quarter to $288 million, compared to $810 million a year ago.

Cash flow from operations also dropped sharply to $574 million, compared with $1.146 billion in the third quarter of 2008.

Suncor blames the operating earnings and cash flow drops on weaker commodity prices in the third quarter this year and higher operating expenses at its oil sands operations due to increased production and sales volumes.

The energy giant says these factors were partly offset by increased upstream production resulting from the merger with Petro-Canada and improved operational performance in its existing oil sands assets.

George said he has no immediate plans to sell the Libya and Syria properties Suncor acquired from Petro-Canada, despite market pressure to avoid the political risk inherent in owning assets in that part of the world. Construction on the Syria project will not be finished until early next year, making it a bad time to sell now, he said.

And he plans to visit Libya in the next two weeks, in hopes of determining for himself the risks inherent in that project.  George did, however, indicate that “the one thing I like about Libya is that it's oil.”

The company's natural gas sales will amount to about 230-million cubic feet of daily production.

Suncor plans to release its 2010 capital spending plan next Friday, but said its intention to spend less than it makes will remake some of the company's strategy – including its use of financial hedging instruments, which it has used in the past to guarantee a commodity price, and therefore revenue, during periods of heavy capital spending.

Capital spending will be done “with a focus on making those investments through free cash flow as opposed to having to take on more debt,” said Bart Demosky, the company's chief financial officer. “We don't have a compelling reason to need to protect the balance sheet and put insurance on.”

The quarterly results marked the first for the newly-expanded Suncor, which consummated its merger with Petro-Canada in August.

“This was a milestone quarter in Suncor's history and a very productive one as we closed our merger with Petro-Canada and started an extensive integration of our operations across the new company,” said George, who repeated his belief that the merged company will find more synergies than the $1.3 billion it initially foresaw.

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