April 29, 2014 / 5:48 PM / 4 years ago

Suncor gets payback from focus on oil sands reliability

CALGARY, Alberta, April 29 (Reuters) - Suncor Energy Inc shares climbed on Tuesday after Canada’s No. 1 oil and gas company reported record first-quarter results that were lifted by increased reliability at its once-problematic Alberta oil sands operations.

The company said late on Monday its earnings from operations jumped 31 percent from the year-before quarter to C$1.79 billion ($1.63 billion), or C$1.22 a share, easily surpassing the 93 Canadian cents per share that analysts had, on average, expected.

Much of that gain came from improved performance at the company’s upstream oil sands operations, which matched the reliability of its downstream refineries.

Once plagued by frequent fires and other maintenance problems, the company’s complex upgraders - which turn tar-like bitumen from the oil sands into high-value, refinery-ready synthetic crude - operated with no major hitches in the quarter, even though northern Alberta had one of its coldest winters in years.

“(The upgraders) were the part of the company that caused issues in the past and caused investor confidence to decline,” said Lanny Pendill, an analyst at Edward Jones.

“To see the reliability we did, both upstream and downstream during a winter that was so extreme, is pretty impressive. If something is going to go wrong it’s typically going to be in the coldest months. This past winter was probably one of the biggest tests we could have seen, and they did very well.”

Suncor said the two upgraders at its oil sands operations north of Fort McMurray, Alberta, ran at 90 percent of capacity in the quarter, producing a record 312,000 barrels per day and matching the utilization rates of the company’s four North American refineries.

“Month after month, quarter after quarter we are steadily improving the reliability of our operations and reducing the frequency and the severity of unplanned outages and incidents, Steve Williams, the company’s chief executive, said on a conference call.

“I’m confident that sustaining 90 percent utilization rates is now within our reach.”

Frequent outages at its oil sands projects in the past caused investors to doubt whether the company could run its operations reliably. In 2010, for instance, Suncor had just completed repairs to one fire-damaged upgrader only to have another fire at its second unit.

The fires cut production, increased costs and forced the then growth-oriented company to bring in outside help to fix the trouble-plagued units. But they also forced Suncor to focus on improving its operating performance, a decision that is now paying dividends.

“The company has continued its focus on accelerating maintenance programs in an effort to improve runtime and drive operating costs,” Arthur Grayfer, an analyst at CIBC World Markets, wrote in a note to clients.

The improved performance has been reflected in the stock price. Suncor shares, which were up C$1.40 at C$42.74 early on Tuesday afternoon on the Toronto Stock Exchange, have climbed 40 percent over past 12 months, well ahead of the 30 percent gain in the exchange’s energy index over the year.

“We’ve been on a reliability push around upgrading for a number of years now and recognize it’s been something we had to work on because it wasn’t acceptable to us,” Williams said. “We are definitely making real progress.”

$1=$1.10 Canadian Reporting by Scott Haggett; Editing by Peter Galloway

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