(Reuters) - The prospect of heavy oil prices remaining low for the foreseeable future prompted Suncor Energy (SU.TO), Canada’s second-largest crude producer, to take a C$2.8 billion ($2.11 billion) writedown on its newest oil sands site, its chief executive officer said on Thursday.
The Fort Hills oil sands mine in northern Alberta began producing in 2018. Suncor announced the writedown on Wednesday, when it reported a larger-than-expected fourth-quarter loss due to impairment charges.
“When the price went down in 2014, I don’t think people realized that we literally were going to go (down) year over year over year,” Chief Executive Mark Little said on a conference call Thursday.
“We’re literally bouncing around, but trading sideways. When we look at the markets we think, ‘hey we’re sitting in this same range going forward for foreseeable future.’”
The impairment was necessary as Suncor adjusted its global oil price forecast down about $10 per barrel, he said.
West Texas Intermediate crude oil CLc1 traded around $51 per barrel Thursday, down 51% from its 2014 high and off about 16% this year.
Suncor’s less optimistic view of heavy oil comes as Vancouver-based Teck Resources Ltd (TECKb.TO), one of Suncor’s partners in Fort Hills, awaits Canadian government approval for its proposed Frontier oil sands mine.
Teck Chief Executive Don Lindsay said last week that, regardless of the government decision, the company needs to see higher prices and other conditions to build the mine.
Teck took a C$1.1-billion pre-tax writedown on Fort Hills in 2015.
Frontier would be economic at a range of oil prices, Teck spokesman Chris Stannell said.
“Frontier’s long life, consistent rate of production and low cash operating costs also make the cyclical nature of oil prices more manageable than developments with shorter lives and declining production rates,” he said.
A spokesman for France-based Total SA (TOTF.PA), another Suncor partner in Fort Hills, could not be reached for comment.
Reporting by Rod Nickel in Winnipeg, Manitoba; Editing by David Gregorio