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(Adds cash flow, details on projects)
By Julie Gordon
VANCOUVER, July 29 (Reuters) - Suncor Energy Inc, Canada's largest oil and gas company, reported a drop in second-quarter operating earnings on Wednesday, as lower crude prices outweighed increased production.
The Calgary-based company, which has already slashed jobs and spending to help cope with the sharp drop in the price of oil, cut its full-year capital spending outlook by C$400 million, though it boosted its dividend by 4 percent to 29 Canadian cents.
The company also said its Fort Hills project in northern Alberta was on schedule, with roughly a third of construction complete and first oil expected in late 2017. The oil sands development is a joint venture with France's Total SA and Canadian miner Teck Resources Ltd.
Suncor's operating profit, which excludes one-time items, fell to C$906 million, or 63 Canadian cents per share, in the second quarter, down from C$1.14 billion, or 77 Canadian cents per share, in the year-ago period.
Net profit was C$729 million, or 50 Canadian cents per share. That compared with a profit of C$211 million, or 14 Canadians cents per share, in the second quarter of 2014, when the company was hit with impairment charges related to its Joslyn project and other assets.
Output from Suncor's Alberta oil sand operations rose 12 percent to 423,800 barrels per day, mainly due to less unplanned maintenance activity in the quarter.
Cash costs for those operations fell to C$28.00 per barrel from C$34.10 in the year-prior quarter, due to the positive impact of increased production, as well as lower natural gas prices and cost reduction initiatives.
Overall, Suncor produced a total 559,900 barrels of oil equivalent per day, up 8 percent from 518,400 in the second quarter of 2014.
Suncor said its focus on capital discipline and cost reduction helped it cut its capital spending outlook for the year by C$400 million to C$5.8 billion to C$6.4 billion.
Cash flow, a key indicator of the company's ability to pay for new projects and drilling, fell to C$2.16 billion, or C$1.49 per share, down from C$2.4 billion, or C$1.64, a year ago.
Along with its Alberta tar sands projects, Suncor produces oil off Canada's east coast, in the North Sea and elsewhere. It also owns refineries in Canada and the United States.
The company's shares closed at C$34.62 on the Toronto Stock Exchange on Wednesday. The stock has fallen 23.7 percent in the last 12 months, as U.S. crude prices halved. (Reporting by Julie Gordon; Editing by Leslie Adler)