UPDATE 2-Doubts about Suncor upgrader sends shares down

Wed Feb 6, 2013 3:03pm EST
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* Shares drop 5.3 pct after earnings miss

* Considering fate of upgrader project

* Rising U.S. oil production seen as threat (Recasts with additional detail and comment)

By Scott Haggett

CALGARY, Alberta, Feb 6 (Reuters) - Suncor Energy Inc , Canada's largest oil and gas company, is poised to walk away from the centerpiece of a C$20.6 billion ($20.6 billion) expansion plan as rising U.S. oil supplies alter the economics of oil sands production.

Shares of Suncor, the dominant producer in Canada's oil sands, slumped nearly 6 percent after it reported late on Tuesday a C$562 fourth-quarter net loss and an operating profit that fell well short of expectations as it wrote down the value of its long-delayed Voyageur upgrader by C$1.49 billion.

Rising U.S. oil production is threatening the viability of what was once Suncor's central strategy - to mine bitumen from the oil sands, upgrade it into refinery-ready synthetic crude and then sell it to refiners in the U.S. Midwest and elsewhere or process it in its own refineries.

The company said it would announce a decision on whether to proceed with Voyageur by the end of March but conceded that the project, part of a joint-venture with French oil major Total SA may not proceed.

"We're looking at all options," Steve Williams, Suncor's chief executive, said on a conference call. "At one extreme you could go ahead with the project as it is. At the other extreme you could cancel the whole project and go ahead with nothing."   Continued...