* Q1 operating shr profit C$0.85 v. C$0.81 expected
* Cash flow rises 1.4 pct to C$2.43 billion
* Production falls 6.5 pct to 562,300 boepd
* Sees limited inflation pressure
* Shares rise 1.4 pct
CALGARY, Alberta, May 1 (Reuters) - Suncor Energy, Canada's top oil producer and refiner, said on Tuesday that cost inflation in the oil sands of northern Alberta, a nagging concern among investors, remains largely at bay as it readies for a massive expansion of its operations there.
The company, which also reported a first-quarter profit that topped expectations and raised its dividend, said it does not expect a return to the hyper-inflation that plagued oil sands projects before the global economic crisis cooled things down, though some concerns remain.
"We're watching very carefully what the inflationary pressures look like," Steve Williams, who became chief executive on Tuesday with the retirement of Rick George, told a conference call. "We're not seeing the same inflationary pressures we were seeing in 2008, but that doesn't mean there aren't some there, particularly around labor."
Suncor and joint-venture partner Total SA are planning the largest expansion project yet seen in the oil sands: the construction of two new mines and an upgrader capable of producing 200,000 barrels per day of synthetic crude oil.
The two companies have not released cost estimates for the project, and they do not expect to make a final decision on whether to go ahead until next year. But already concerns that inflation could squeeze profit margins are said to be one of the factors behind a 25 percent drop in Suncor's share price over the past year despite strong oil prices.
Williams said inflation is being restrained by the greater availability of engineering and design personnel as well as fabrication shops, where production equipment is assembled.
"One of the basic differences on this cycle and the one in 2008 generally speaking, is the world's engineering houses and fabrication shops are not full to the same extent they were in 2008," he said.
Williams also said that Suncor is working with the federal and provincial governments to ensure the company can tap pools of foreign labor once it has exhausted the limited supply of Canadian skilled trades.
"Indications are that we're going to get some relief this time in terms of being able to adequately provide labor for these projects," he said. TOPS EXPECTATIONS
Suncor said weaker production volumes and higher royalties sent its first-quarter operating profit down 10 percent to C$1.33 billion ($1.35 billion), or 85 Canadian cents a share. But the per-share results topped analysts' average forecast by 4 Canadian cents, according to Thomson Reuters I/B/E/S.
Year-earlier operating profit was C$1.48 billion, or 94 Canadian cents a share.
The company announced an 18 percent increase in its quarterly dividend late on Monday, to 13 Canadian cents a share from 11 Canadian cents.
"We view the results and dividend increase as positive and expect the stock to react accordingly," National Bank analyst Kyle Preston said in a note to clients. "We would have liked to have seen a slightly larger dividend increase but note this is at least a step in the right direction."
Cash flow, a key indicator of the company's ability to fund new projects, rose 1.4 percent in the quarter to C$2.43 billion, or C$1.55 a share, from C$2.39 billion, or C$1.52, a year earlier.
Net income rose to C$1.46 billion, or 93 Canadian cents, from C$1.03 billion, or 65 Canadian cents, a year earlier, lifted by higher average oil prices.
Suncor's oil and gas production dropped 6.5 percent to 562,300 barrels of oil equivalent a day after a operating problem forced the company to shut part of an upgrader for repairs and because it closed its Syrian operations to comply with international sanctions.
Suncor said quarterly operating revenue rose almost 8 percent to C$9.65 billion on the back of higher average oil prices.
Suncor shares were up 48 Canadian cents at C$33.11 at midday on Tuesday on the Toronto Stock Exchange