5 Years After the Crash: Suncor Still Fighting Rising Costs

Management’s changed its tune. Will it be enough to get to the stock on a roll?

| More on:
The Motley Fool

In July 2008, oil hit a high of $147 only to come tumbling down in the midst of the financial crisis and ensuing recession to lows of $32 in December 2008.  It has been a wild ride for producers to say the least. To illustrate, here’s a look at Suncor’s (TSX:SU, NYSE:SU) stock has fared through it all.

suncor price chart 5 year

Source:  Capital IQ

The price of oil remains $100 currently, a level that seemed unheard of through the early and mid-2000’s but has become “normal” in the last few years.  Meanwhile, despite a bit of a rally of late, Suncor’s stock price has languished as the company has struggled with rising costs.

In 2009, Suncor’s earnings were hit as oil prices crashed to levels that made Suncor’s operations struggle to remain profitable.  As we can see from the table below, Suncor’s earnings in 2009 were halved.

($ millions)














Earnings Before Taxes







Source:  Capital IQ

Then oil prices started to recover, which helped boost earnings.  And while earnings were recovering, management came to the realization that Suncor’s costs on its various projects were skyrocketing to the point where expected capital expenditures became so high that the economics on these projects were not making sense anymore.

Escalating Costs

In 2012, Suncor’s new CEO told investors that “growth for the sake of growth doesn’t interest me too much.  What interests me is profitable growth”.  This came after the realization that costs on three of Suncor’s projects, the Joslyn and Fort Hills oil sands mines, and the Voyageur upgrader, continued to rise.  He said that he might just as well abandon these projects if they continue to drag profitability down.

No question, oil sands development and mining costs are soaring.  Back in 2007, oil sands companies were saying that they could yield reasonable returns at prices in the $50 to $60 per barrel range.  Currently, companies are saying that they need over $90 or more per barrel in order to achieve these returns.

U.S. Bakken Oil

Complicating matters, light oil production from the U.S. Bakken has soared.  Light oil does not need much upgrading to get to the consumer compared to Suncor’s oil from the oil sands.  This, along with a lack of pipelines to deliver the oil, has left Suncor struggling to compete.

The eroding economics led to the announcement on March of 2013, when management said that Suncor had cancelled its $11.6 billion Voyageur project.  Management explained how the market has changed since 2010 to the point where the economics of the project did not add up anymore.  Suncor booked an after-tax impairment of $1.49 billion in the fourth quarter of 2012.

What About Fort Hills?

Suncor and its partners are currently evaluating whether the 190,000 barrels a day Fort Hills oil sands mine project should also be cancelled.  An announcement is expected in November.

Bottom Line

Suncor has been struggling since the financial crisis, with volatile commodity prices and soaring costs.  The stock has languished accordingly.  Suncor is now under new management and is moving forward with profitability and shareholder returns on its mind.  This is in contrast to the former emphasis that was placed on growing production, and could translate into a resurgence for owners of this Canadian energy giant.

Looking for more expert advice?

The Motley Fool Canada’s senior investment analyst just unveiled his top two stock ideas for new money now. And YOU can be one of the first to read his buy reports — just click here for all the details.

Fool contributor Karen Thomas does not own shares in any of the companies mentioned.  The Motley Fool does not own shares in any of the companies mentioned.    

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing

think thought consider

TSX Stocks Are Still Dirt Cheap! 3 Bargains I’d Buy Today

TSX stocks like Well Health and BlackBerry are digitizing their chosen industries and effectively disrupting the landscape.

Read more »

investment research
Dividend Stocks

Better Buy: Scotiabank or TD Bank Stock?

Take a closer look at Scotiabank and TD Bank stock to determine which might be the better addition to your…

Read more »

retirees and finances
Dividend Stocks

How to Retire in a Bearish Market

Are you looking to retire this year but are skeptical because of the bearish market? Here is a way to…

Read more »

Hand writing Time for Action concept with red marker on transparent wipe board.

2 Seriously Misunderstood Value Stocks to Snap Up Before the Market Figures Them Out

Jamieson Wellness (TSX:JWEL) and another mid-cap stock are worth consideration for your TFSA.

Read more »

Target. Stand out from the crowd
Dividend Stocks

TFSA Investors: 2 Stocks to Buy if the Market Drops Even More

We still aren't in a recession, so we still haven't seen a market bottom. If these stocks drop even more,…

Read more »

analyze data

Why Brookfield Asset Management Could Be One of the TSX’s Best Value Stocks

Brookfield Asset Management (TSX:BAM) is a wonderful dividend-growth stock that's hiding in plain sight right now.

Read more »

Woman has an idea
Dividend Stocks

2 Dirt-Cheap Dividend Shares I’d Buy for Long-Term Passive Income

Dirt-cheap dividend stocks should be evaluated more thoroughly than their more stable counterparts for long-term dividend sustainability.

Read more »

stock research, analyze data
Dividend Stocks

3 Oversold Dividend Stocks (With a 7% Yield) I’d Buy Right Now

TSX dividend stocks such as Enbridge and TC Energy offer investors dividend yields of more than 7% in 2023.

Read more »