Suncor aims to nip inflation fears as profit rises

Wed Feb 1, 2012 1:32pm EST
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By Scott Haggett

CALGARY, Alberta (Reuters) - Suncor Energy Inc (SU.TO: Quote), Canada's largest oil sands producer, said on Wednesday it is not concerned about a renewed round of inflation for new projects in the region, even as costs rise for its rivals.

The company, which reported a jump in fourth-quarter profit of more than 10 percent earlier on Wednesday, moved to ease fears that a flurry of new investment in the oil sands would spark another round of the hyper-inflation that plagued the industry prior to the 2008 financial crisis.

Rick George, who is retiring in May after serving as Suncor's chief executive for 21 years, said inflation is not imperiling the company's multibillion-dollar plans to boost output to more than a million barrels a day by 2020.

"I feel this cycle is very different than the 2005 to 2008 cycle," George said on a conference call. "I think the industry in general is showing more much more discipline ... And in addition to that we are not seeing material costs for equipment, pumps, compressors, valves, escalating at the rate we saw in that last cycle."

Cost inflation was a huge problem for the oil sands sector during the last development boom, triggered by the run to $147-a-barrel oil.

Operators scrambled to boost output from the world's third-largest crude reserves, but there were only so many skilled workers to go around. Labor and material costs skyrocketed and construction costs for the huge projects soared by half or more.

Fears that costs might again spiral higher have been one of the factors behind the weak performance of Suncor's shares, which have dropped 17 percent over the past 12 months.

Those worries were further stoked when Imperial Oil Ltd (IMO.TO: Quote) said in December that the cost for its 345,000 barrel per day Kearl oil sands mine had jumped by 25 percent to more than C$28 billion ($28 billion).   Continued...