Lower-cost oil arriving at Suncor Montreal refinery by train, tanker

CALGARY - Suncor Energy Inc. says it's bringing lower-priced crude into its Montreal refinery by rail and ship as it awaits approval of a pipeline project that would send Alberta oil eastward.

Canada's largest energy company (TSX:SU) is shipping 30,000 barrels per day of crude by rail to the 137,000 barrel per day refinery, following completion of an offloading facility there late last year.

It's also accepting marine cargoes on an "opportunistic basis" from Texas and Louisiana "at significant discounts to the international crudes we would typically run in Montreal," CEO Steve Williams told analysts on a conference call Tuesday.

Williams said he expects a "positive" regulatory decision within the next month or two on an Enbridge Inc. (TSX:ENB) proposal to reverse the flow of a pipeline between southwestern Ontario and Montreal, to move 300,000 barrels per day from the west to the east.

"A lot of the potential investment we talk about in Montreal is conditional upon us getting low-cost feedstock into that refinery," Williams said.

"So we remain cautiously optimistic that we'll see that approval in the next four to eight weeks."

Suncor has been considering adding a coker — equipment used to convert heavy oilsands into easier-to-process light oil — to its Montreal refinery. That's a much lower cost option than building an all-new upgrader in the inflation-prone Fort McMurray, Alta., area.

"We want to configure the Montreal refinery so we can optimize a broad basket of crudes going into there," said Williams.

"We like the refinery. We like the flexibility and we'll take advantage of whatever crude is the best crude of the day."

Williams made the comments after Suncor issued disappointing financial results late Monday.

The price Suncor that was able to get for its landlocked crude took a hit during the fourth quarter, as it churned out more bitumen than it was able to sell at world prices.

But Suncor says it's in good shape for 2014 given the steps taken at the Montreal refinery — plus another 50,000 barrels per day heading to U.S. Gulf Coast refineries on the recently started southern leg Keystone XL, the line being built by TransCanada Corp. (TSX:TRP).

Suncor's operating earnings during the last three months of 2013 were $973 million, down from $988 million in the fourth quarter of 2012.

The operating earnings of 66 cents per share missed analyst estimates of 78 cents per share.

Net earnings, which include one-time items, were $443 million, or 30 cents per share, compared to a loss of $574 million, or 38 cents per share, during the fourth quarter of 2012, when Suncor booked a $1.49-billion charge on its scrapped Voyageur oilsands upgrader.

Suncor also announced Monday that its dividend will rise by three cents or 15 per cent to 23 cents per share, starting with the March 25 payout. That followed a seven cent hike announced in April 2013.

Its board of directors has also approved additional share buybacks of up to $1 billion, subject to regulatory approval.

"These decisions are a vote of confidence in our ability to generate free cash flow over and above our requirements to sustain and profitably grow the business," said interim chief financial officer Steve Reynish.

Production during the fourth quarter of 2013 was 558,100 barrels per day, compared to 556,500 boe/d a year earlier. Output in its core oilsands business averaged 409,600 boe/d, compared to 342,800 boe/d.

Suncor has reduced its 2014 output targets due to political unrest in Libya. It is now expecting a range of 525,000 to 570,000 barrels of oil equivalent per day company-wide, down from 565,000 to 610,000 boe/d.

Suncor shares were off 58 cents, or 1.6 per cent, at $35.06 in mid-day trading on the Toronto Stock Exchange.

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