Suncor Energy budgets $5.5 billion in capital spending for 2010

By Lauren Krugel, The Canadian Press

CALGARY - Suncor Energy Inc. (TSX: SU.TO) says it is budgeting $5.5 billion for capital spending in 2010, and that Phases 3 and 4 of its Firebag oilsands project will be the first out of the gate.

"This officially restarts the growth of oilsands," chief executive officer Rick George told analysts on a conference call to discuss his firm's 2010 plans.

Canada's biggest oil company since its acquisition of Petro-Canada this year says about $1.5 billion of its 2010 capital budget will go towards growth projects, which includes resuming construction on the Firebag Stage 3 oil sands project.

The project was half complete when it was deferred earlier this year. Suncor now expects production to begin in the second quarter of 2011 with volumes ramping up to the design capacity of about 68,000 barrels per day of bitumen.

Spending will also go towards Firebag Stage 4 to support a target of first bitumen production in the fourth quarter of 2012.

Some growth capital will also go towards completing the Millennium Naphtha Unit and expanding Suncor's St. Clair Ethanol Plant.

The remaining $4 billion of the 2010 capital budget will go towards sustaining existing operations.

Plans include investments in Suncor's Tailings Reduction Operations and maintenance plans at oil sands, natural gas, international and offshore facilities. Downstream operations will see spending focused on improving environmental performance and planned maintenance at work.

Suncor's proposed Voyaguer upgrader, which would convert the sticky bitumen from the oilsands into higher quality synthetic crude oil, is to remain in "safe mode" for the foreseeable future.

In the near term, the price differentials between heavy and light crude are narrow enough that it doesn't make sense to invest in upgrading for the time-being.

Instead, it may be a better idea to sell bitumen to refiners in the United States that are seeing lower volumes of heavy oil come in from Venezuela and Mexico.

"But I do see that Voyageur upgrader as a great option for us down the road at some point," said George.

The Fort Hills mining project is also not on the agenda for next year, since Firebag was further along in engineering and construction.

Suncor inherited a 60 per cent stake in Fort Hills through its merger with Petro-Canada in August. Teck Resources Ltd. (TSX: TCK-B.TO) and UTS Energy Corp. (TSX: UTS.TO) evenly split the rest.

It was shelved just over a year ago by the project partners amid skyrocketing costs and low commodity prices.

"Obviously it is not in this first leg. It's hard for us to see project economics beating Firebag 3 or 4 for other projects that we have, certainly in the near term," George said.

"We continue to like the resource. We're not sure exactly at this point exactly where Fort Hills fits into the development plan overall."

Last week, Suncor had said it planned to sell as much as $4 billion in assets as it grappled with the various operations it took on through its union with Petro-Canada earlier this year.

Suncor shares rose 30 cents to $36.74 in mid-morning trading on the Toronto Stock Exchange.