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Suncor rethinks strategy as unconventionals' rise changes supply mix

North America's changing supply mix is prompting Canadian oil-sands producer Suncor Energy to rethink its strategy

The Calgary-based company posted a net loss of C$562 million ($564.09m) in the fourth quarter. The figure included a C$1.5-billion impairment charge on the unfinished Voyageur upgrader, a C$11.9-bn reactor designed to convert 270,000 barrels per day (b/d) of raw bitumen into refinery-ready oil.

Suncor's disappointing financial performance reflects a broader shift in the North American supply mix, which is being altered by unconventional plays, such as the Bakken and Eagle Ford.

Suncor's chief executive, Steve Williams, blamed a surge of light, sweet oil from the US shale basins for a collapse in Canadian oil prices, which are trading at record discounts to WTI. Suncor's slate of bitumen and synthetic blends fetched $77.37 a barrel in the fourth quarter of 2012, significantly down on the $98.02/b it booked in same quarter in 2011. "I think everybody was surprised with the speed with which the mid-continent tight crude came into production. Clearly...we have too much light, sweet crude, which is what upgraded synthetic crude effectively is," Williams said on a conference call.

The discounts are costing oil-sands producers about $50m per day, or more than $18bn this year. Canadian politicians have dubbed it the "bitumen bubble'" that threatens future oil-sands expansion.

The mounting losses are prompting the government to consider the reversal of existing pipelines to the country's east coast, effectively backing out imports of highe- cost Brent crude. Although Canada is a net oil exporter, it imports roughly 1m barrels a day through the Atlantic basin.

Extending the transnational oil pipeline to Saint John, New Brunswick, could allow the Irving refinery, Canada's largest, to triple capacity to 1m b/d. Williams said Suncor is also looking at modifications to its existing Montreal refinery to take heavier Athabasca crudes.

However, those decisions are predicated on sanctioning of the new mines, which is expected in the second half of the year. Suncor will also make decision on Voyageur, although Williams warned the project could be scrapped entirely. "Our view of the market has changed, substantially," he said.

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