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Mar 24, 2020

Suncor slashes spending plans 26% as demand shock rattles oil industry

Suncor slashes spending plans amid COVID-19 pandemic

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Suncor Energy Inc. has joined the parade of companies slashing their spending plans in the face of a one-two punch from the COVID-19 outbreak and an oil price war between Saudi Arabia and Russia.

In a release late Monday night, the Calgary-based energy major said it plans to cut spending by $1.5 billion to a range of between $3.9 to $4.5 billion due to the demand shock.

In the release, Suncor President and CEO Mark Little said the company was taking that action to ensure it could endure an extended period of disruption.

“The simultaneous supply and demand shocks are having a significant impact on the global oil industry. We are adjusting our spending and operational plans to be prepared in the event the current business environment persists for an extended period of time,” Little said. “Our business model and financial strategy are designed to withstand volatile environments.”

The company said crude-by-rail is uneconomic at this juncture and it will remove those shipments from its forecasts, and announced it will scale back operations at the sprawling Fort Hills oil sands mine.

Crude-by-rail economics begin to deteriorate when the discount of Canadian crude versus the American benchmark West Texas Intermediate narrows to less than $17 per barrel. That differential stood at $14.50 as of Monday.

Suncor is also suspending share buybacks in a bid to preserve cash, and said it has secured an additional $2.3 billion of liquidity from its key lenders as of the end of the month. Suncor had approximately $6.7 billion in liquidity at the end of 2019. The company has no debt maturing this year.