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Suncor Shops Third of North American Gas Assets

Calgary-based Suncor Energy Inc. wants to sell about one-third of its North American-weighted natural gas properties, part of a plan to divest up to C$4 billion of oil and gas assets in 2010.

The sales would reduce Suncor's oil and gas output by 10%, but production would increase as the company begins new oil-based projects, said CEO Rick George. Suncor, a dominant oilsands player, became Canada's largest producer after it completed its merger with PetroCanada Corp. in August (see NGI, Aug. 3).

"Our reserves are dominated by oilsands," George told financial analysts during a conference call Friday. "All of the other reserves support oilsands growth...We will continue to invest in natural gas but not at a rate that the companies did separately before."

Suncor always has been oil-weighted; PetroCanada was equally weighted to gas and oil. PetroCanada also was developing unconventional gas in North America, and Suncor may be looking for a joint venture partner to develop shale projects (see NGI, Sept. 21).

The proposed divestments identified to date include gas assets in Western Canada and the U.S. Rockies, all Trinidad and Tobago assets and some noncore North Sea assets. In the U.S. Rockies Suncor now explores for and produces gas, crude oil and natural gas liquids in the Denver-Julesburg, Green River, Powder River and Uinta basins.

Once the divestitures are completed, the remaining gas assets are expected to provide a "solid foundation to support long-term growth in our core oilsands business while targeting a low-cost position among North American natural gas producers, with a growing focus on unconventional gas."

Suncor's board approved a C$5.5 billion capital spending plan for 2010, C$1.5 billion to be directed toward growth project funding, primarily the company's oilsands operations, and C$4 billion to sustain existing operations. Gas is part of the "sustaining operations" budget; about C$250 million is to be spent on gas in 2010.

"While we've seen some improvement in crude oil prices and the overall economy, we believe that a conservative capital strategy remains the best approach for Suncor," said George. "We're looking at a level of capital investment that is supportable entirely from free cash flow at mid-cycle crude oil prices."

Suncor's growth projects will be based "on highest expected return on capital, near-term cash flow and lowest risk," he said. And that means more oilsands projects, less natural gas.

After completing the PetroCanada merger, Suncor's natural gas business in the final two months of 3Q2009 (August and September) averaged 772 MMcfe/d. Additional production resulting from the merger accounted for 563 MMcfe/d. Production from Suncor's legacy natural gas operations averaged 208 MMcfe/d in 3Q2009, compared with 213 MMcfe/d in 3Q2008. The year/year decline in gas output was attributed to shut-in production in the Elmworth area and the sale of some noncore assets earlier this year.

"We have also begun the process of reviewing all capital projects with a view to directing capital investment toward projects with the strongest near-term cash flow potential, highest anticipated return on capital and lowest risk," said George.

"These were necessary steps to get us on a footing where we can compete on the global stage as one of the largest independent energy companies in the world," he said. "With our new organization largely in place and our review of investment opportunities well under way, we expect to be in a position to begin translating strategy into action in the coming weeks..." A 2010 budget plan is to be issued later this year.

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