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Suncor Cuts Capex By $1 Billion, Fires 1000, Implements Hiring Freeze

Tyler Durden's picture




 

For all those who have forgotten that the I in the GDP equation stands for Investment, here is a reminder courtesy of the latest crude collapse victim, Suncor, which moments ago announced it is not only cutting its 2015 CapEx by $1 billion (as in I, directly and adversely impacting US GDP by the same amount) but that it would also cut "operating expenses" by up to $800 million, and, drumroll, implementing "a series of workforce initiatives that will reduce total workforce numbers in 2015 by approximately 1000 people, primarily through its contract workforce, in addition to reducing employee positions. There will also be an overall hiring freeze for roles that are not critical to operations and safety."

Or as Joe LaVorgna and all the other mainstay CNBC "analysts" would call it, "unambiguously good."

From the press release:

Suncor Energy Inc. announced today significant spending reductions to its 2015 budget in response to the current lower crude price environment. The cuts include a $1 billion decrease in the company's capital spending program, as well as sustainable operating expense reductions of $600 million to $800 million to be phased in over two years offsetting inflation and growth.

 

"Our integrated model and strong balance sheet have positioned us well for the price downturn," said Steve Williams, president and chief executive officer. "Cost management has been an ongoing focus, with successful efforts to reduce both capital and operating costs well underway before the decline in oil prices. However, in today's low crude price environment, it's essential we accelerate this work. Today's spending reductions are consistent with our commitment to spend within our means and maintain a strong balance sheet. We will monitor the pricing environment and take further action as required."

 

Suncor is implementing a number of initiatives to achieve the cost reduction targets. These include deferral of some capital projects that have not yet been sanctioned, such as MacKay River 2 and the White Rose Extension, as well as reductions to discretionary spending. Budgets affecting the company's safety, reliability and environmental performance have been specifically excluded from the cost reduction program.

 

Suncor has also implemented a series of workforce initiatives that will reduce total workforce numbers in 2015 by approximately 1000 people, primarily through its contract workforce, in addition to reducing employee positions. There will also be an overall hiring freeze for roles that are not critical to operations and safety.

 

Major projects in construction such as Fort Hills and Hebron will move forward as planned and take full advantage of the current economic environment. These are long-term growth projects that are expected to provide strong returns when they come online in late 2017.

 

Suncor has issued an update to its 2015 guidance to reflect, among other items, reduced spending and lower pricing and related assumptions. Production guidance for 2015 has not changed.

 

Suncor's fundamental goals remain the same, with operational excellence, capital discipline and profitable growth remaining key to its business strategy. In fact, today's announcement reflects the application of these principles, in the context of the current low price environment.

 

"The strategic decisions we've made are consistent with our unwavering focus on capital discipline and operational excellence," said Williams. "We will continue to carefully manage our spending priorities: sustaining safe, reliable and environmentally responsible operations, providing a meaningful, competitive dividend for our shareholders and investing in profitable growth."

Many, many more to go.

 

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Tue, 01/13/2015 - 17:53 | 5657271 LawsofPhysics
LawsofPhysics's picture

...because low oil prices are good for the economy.

 

Party at the FEMA camp bitches!!!

Tue, 01/13/2015 - 17:59 | 5657305 Carpenter1
Carpenter1's picture

Easiest short in the world, Canadian banks.

Tue, 01/13/2015 - 18:10 | 5657360 Panem et Circus
Panem et Circus's picture

I dunno, Suncor is a good one too with all of their renewable projects (particularly wind) in Alberta. There are very few long term PPAs for renewables, which wind pretty much relies on completely. Alberta renewables are all market rate, so when oil is $47 and gas is $4 it's a nightmare scenario. Out of work oil patch citizens bring out guillotines quickly on politicians that promote wind at 10c/kWh.

But yeah, Canadian banks (or anything whatsoever) with large exposure in Alberta is a pretty good short.

Tue, 01/13/2015 - 19:27 | 5657733 Carpenter1
Carpenter1's picture

Tarsands are better but they've already been creamed, banks are still near 10 year highs. Plenty of profit left for shorts.

Tue, 01/13/2015 - 17:56 | 5657279 Lokking4AnEdge
Lokking4AnEdge's picture

Every time a US company cuts its workforce the share price goes up.

I wonder if the same applies to Canadian companies......

Tue, 01/13/2015 - 17:56 | 5657286 H H Henry P P P...
H H Henry P P P Paulson's picture

A thousand people just lost their jobs. Many of those people are probably just starting a new family and raising their first child. How could CNBC spin any of this as good news for the economy?

Tue, 01/13/2015 - 18:02 | 5657317 saints51
saints51's picture

The MSM is a cunning villain.

Tue, 01/13/2015 - 18:10 | 5657369 Panem et Circus
Panem et Circus's picture

It'll be brutal, my heart goes out to the poor bastards. Almost like the 49ers (the original ones) in California.

Tue, 01/13/2015 - 18:09 | 5657361 TheRideNeverEnds
TheRideNeverEnds's picture

You need to understand that by 'The Economy' they mean central bank intervention increasing asset prices.  

Tue, 01/13/2015 - 17:58 | 5657290 The Shape
The Shape's picture

Damn, I was planning to move to Calgary and get my real estate license (out of a conflakes packet).

Tue, 01/13/2015 - 18:01 | 5657316 comrade rally monkey
comrade rally monkey's picture

I smell an hedonics adjustment forthcoming

Tue, 01/13/2015 - 18:03 | 5657321 Seasmoke
Seasmoke's picture

Spoon to spread, liked leaking oil in the ground, to HOUSING. 

Tue, 01/13/2015 - 18:06 | 5657339 swass
swass's picture

Undoubtedly we have an over-supply of oil and the industry hasn't trimmed enough fat yet to call it complete, but oil was in a range from the mid-80's to mid-90's, and even lower down into '99.  Yeah, I know, inflation since then.  But the point is that the oil industry wasn't necessarily booming during those times either.  The speculation caused by endless wars and Fed monetary policy is what is responsible for the price volitility we're seeing and the consequences in the form of layoffs, etc.

Tue, 01/13/2015 - 18:11 | 5657366 Bennie Noakes
Bennie Noakes's picture

I've always admired Suncor's name. It sounds so clean and fresh and renewable. Much better than Tarcor.

Tue, 01/13/2015 - 18:14 | 5657393 falconflight
falconflight's picture

1,000 layoffs and the multiplier is what maybe 2,000 more?  That alone will markedly damage the local economy. Fast food to homes to auto repossessions.  The whole economy will shutter if the layoffs continue.

Tue, 01/13/2015 - 18:14 | 5657395 hotrod
hotrod's picture

Should be good for Tim Horton's.  Gotta sit somewhere.

Tue, 01/13/2015 - 18:16 | 5657403 geno-econ
geno-econ's picture

Announcement does not define where Capex spending of $1 Billion is to be cut  ( US or Canada )  so how can it reduce US GDP by same amount ?  I thought Suncor was a Canadian company with most of their operations in Canada, unless they mean sales to US will decrease by $ 1 Billion ?

Tue, 01/13/2015 - 18:19 | 5657417 hotrod
hotrod's picture

no doubt the post it notes and pens are gone

Tue, 01/13/2015 - 20:10 | 5657861 disabledvet
disabledvet's picture

NONSENSE!  BALDERDASH!

Tue, 01/13/2015 - 18:17 | 5657404 Casserole of no...
Casserole of nonsense's picture

So borrowing money you can never pay back to "invest" in something that was never going to make money and was just going to be written off as a "one time charge" is good for GDP?

Got it...

Tue, 01/13/2015 - 20:12 | 5657871 disabledvet
disabledvet's picture

"In Canada."

Tue, 01/13/2015 - 18:29 | 5657461 hotrod
hotrod's picture

While they are at Crashing industries how about going after the Insurance industry and College Education. These businesses seem to be untouchable.  Then how about go after the FEDERAL GOVERNMET and GUT this over spending, generous paying industry.  Seems only fair.

Tue, 01/13/2015 - 18:48 | 5657551 Eternal Complainer
Eternal Complainer's picture

Thats not the way it works in this backwards upside down world.

The showroom stays open while the production plant gets shut down.
Management gets to keep their jobs while the assembly line workers get their walking papers.
They call it ...."The New Normal".

Tue, 01/13/2015 - 18:31 | 5657475 Spectre
Spectre's picture

Yet they still have the corp jet that comes with 100K a month in fixed costs.  Go figure

Tue, 01/13/2015 - 18:35 | 5657495 Ewtman
Tue, 01/13/2015 - 19:16 | 5657683 CanadaFrank32
CanadaFrank32's picture

My suggestion is watch Fort Mcmurray real estate market. That will be the first to go...

Tue, 01/13/2015 - 20:55 | 5658007 Bopper09
Bopper09's picture

You know, I haven't looked, but I'm sure it's already done.  And I work for a company similiar to suncor, and have to say, once in a while low prices aren't a bad thing, for them cutting 1000 jobs, is simply jobs that should have never been in the first place.  I mean, our company pays money for every employee to take a fucking course on 'weed management' for aound pumpjacks.  Are you fucking kidding me.  A weed course.  I'll be glad to see all this shit dissapear for a while. 

Cenovus is on a hiring freeze as well.

Tue, 01/13/2015 - 20:02 | 5657834 wow thats crazy
wow thats crazy's picture

They better build the Key Stone pipeline before they crap it

Tue, 01/13/2015 - 22:23 | 5658296 squid
squid's picture

Ok Dudes, some sanity about Alberta:

1. I was in University during the 1986 crash, the first year that engineering students could not find summer work in the history of the UofA,

2. Along highway 16, east of Edmonton, you could buy snowmobiles, drilling rigs, boats, bulldozers, scrapers, trucks, anything, it was all up for pennies on the dollar in the summer of 1986,

3. During my time in University it cost Syncrude US$17 per barrel to bust the oil out of the tar in Fort Mac. Due to money printing that is likely US25-30 bucks now, (Note that ALL of the UofA pertroleum engineering department's research money comes from Suncore, Syncrude and the Alberta government SPECIFICALLY to find newer and cheaper ways to bust that oil out of the tar at Fort Mac),

4. Fracking is new in Alberta, before 2010 I would estimate it as being almost nill,

5. Alberta has 12% of the world's (not Canada's, the world's) Bituminous coal reserves, or so they told us in Uni in 1987,

6. The above mentioned coal is 2m below the surface in many places and has VERY low to negligible sulfur content,

7. Items 5 and 6 mean Alberta generates ALL its own electricity and sells much of it to BC, Saskatchewan and the US, See here for a list: http://www.transalta.com/facilities/plants-operation,

8. Items 5-6-7 are the major reason the tar sands even exist, without cheap electricity you can't bust the oil out of the tar,

9. Alberta also has a huge agriculture and logging industry.

What does this all mean?

1. Alberta has seen crashes before (1986 was a great learning experience for me, especially the part about seeing falling real-estate prices. Learning by seeing is invaluable.),

2. The tar sands will follow oil all the way down to 20 and keep running and they will keep investing. They have the raw product, 5 x Saudi Arabia's worth of that tar, so it will keep working,

3. The fracking in Alberta will dry up,

4. Real-estate in Fort Mac, Edmonton and surrounding areas will correct, mayby by 50% but certainly by 30%,

5. The rest of Alberta will be fine.

Fracking is not that big of a deal in Alberta, tar sands are. US60 oil is required for the fracking, US25 is required for the tar sands. North Dakota will bleed as they are ALL fracking, Alberta is not. While things will get shitty, Alberta has been there before. The people that will really hurt are all the import workers from the maritimes, they will get laid off and go home to collect poggy...which will suck.

 

Real Estate? Sure that's an issue but there is no such thing in Canada as a zero percent mortagage, they have never existed. To buy a house has always been 20% down. You need a 20% drop in real estate to go underwater in that case. Will we see a 20% drop? Quite likley but so long as said victim does not get laid off they can support the mortagage. Most did in 1986, same will be so now. 

 

Me? As interesting as that all is, I left Canada 25 years as a tax refugee and am not going back. I would go back to retire if not for the absolute SHIT medical system. How do I know its shit? I've seen many in my travels and Canada is the only place other than North Korea that I cannot open the yellow pages and go see Dr. Joe Blogs Ltd. for a tummy ache or whatever. I MUST, by virtue of the Canada Health Act of 1968, go see a provicial employee that happens to be a Doctor. There is no private health care in Canada, ITS ILLEGAL. And since I'm not interested in having an organization like the post office do my health care, I don't live there. Poeple here in Singapore are in absolute shock when I point this little health care titbit out to them about Canada. The Canadian government hides this Soviet concept from everyone, its just not talked about.

 

Things are certainly exexciting these last 8 years.

 

Question: Why does the spell checker not work?

 

Cheers,

squid

 

Wed, 01/14/2015 - 00:52 | 5658725 Abbie Normal
Abbie Normal's picture

Interesting points, squid, but your numbers are 20 years out of date.  Even when WTI was at $100, tarsands oil only fetched $75 so imagine what it's worth now.  Low-sulfur?  Have you seen those huge mountains of sulfur at the Ft. McMurray plants, they're visible from space. 

And all of the oil company headquarters are in Calgary, along with their support staff.  So when the job cuts come again (as they did in the '80s) expect another 40-50% freefall in real estate, and probably 60-70% in Canmore for those $600k mobile homes (the kind without wheels)  because the CMHC has backed 5% mortgages since the early '90s.

As for health care, private clinics have popped up all over and those that can afford it are happy to shell out $1K for an MRI rather than wait 3 months under the govt. system.  Hope life in Singapore is all its cracked up to be, as long as you don't spit outside.

Tue, 01/13/2015 - 22:51 | 5658401 fibonacci's claus
fibonacci's claus's picture

i heard from a friend that works for .gov that this is the new trend.  they have to now enter their own hours into the .gov computers because .gov is firing the administrators!

 

now that sounds like a step in the right direction. 

 

why not just get rid of the administration. period.

 

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