* Profit beats Street across the board on refining margin
* Suncor operating profit C$0.85 versus est. C$0.78
* Imperial profit C$1.22 versus est. C$1.08
* Husky profit excl. items C$0.52 versus est. C$0.40
* Shares of all three up 3 percent in Toronto
By Jeffrey Jones
CALGARY, Alberta, Nov 1 Canada's large
integrated oil companies pocketed hefty returns at their
refineries in the third quarter, lifting profit well beyond
expectations and prompting investors to bid their shares sharply
higher on Thursday.
Suncor Energy Inc, Imperial Oil Ltd and
Husky Energy Inc all took advantage of a wide gulf
between the discounted price of oil in the glutted North
American interior and expensive imported barrels, a benefit that
showed up in an important measure known as the refining margin.
That spread has been building for the past year as booming
production in both Canada and the United States has flooded the
market in the U.S. Midwest and Midcontinent regions.
Meanwhile, U.S. petroleum product inventories were low
through the summer and into autumn following the closure of
refineries on the East Coast in recent years, said Lanny
Pendill, analyst at Edward Jones.
"Refiners with that advantage have really been making out
like bandits and reaping record profits in refining, whereas the
less advantaged ones haven't done that well and have actually
closed plants or are looking to divest plants, and we've seen a
lot of that occur in the last 12 to 18 months," Pendill said.
Discounted Canadian crude prices are squeezing returns in
the oil-producing parts of the business. Suncor on Thursday
delayed a multibillion-dollar oil sands processing plant in
Alberta due to the surge in light crude output in regions like
the North Dakota Bakken, permitting refineries to be fed with
Following the round of Street-beating profit, shares of the
Canadian refiners all jumped about 3 percent on the Toronto
Stock Exchange. Suncor rose C$1.16 to C$34.68, Imperial gained
C$1.34 to C$45.53, and Husky climbed 90 Canadian cents to
Pendill pointed out that the effects were not just showing
up among the Canadian integrateds, but also in results of the
global majors, including Exxon Mobil Corp, BP Plc
and Royal Dutch Shell.
One factor expected to eventually lift discounted Canadian
and U.S. crude prices is the coming expansion of pipeline
capacity to U.S. Gulf Coast refineries from the Cushing,
Oklahoma, storage hub.
SUNCOR PROFIT UP 21 PERCENT
In the third quarter, Suncor, the country's biggest oil
company, earned C$1.6 billion ($1.6 billion), or C$1.01 a share,
up 21 percent from year-earlier C$1.3 billion, or 82 Canadian
cents a year, for the third quarter of 2011.
Operating profit fell 27 percent or 85 Canadian cents a
share, but it handily beat the average forecast of analysts for
78 Canadian cents, according to Thomson Reuters I/B/E/S.
The company, one of the largest oil sands developers,
chopped its capital budget for the year by 11 percent to C$6.65
billion, citing deferred spending at the Syncrude Canada joint
venture and offshore developments in Newfoundland and the North
Sea, as well as its strategy to increase returns.
However, refining and marketing, or the downstream segment
of the business, generated company-record earnings, with the
inland refineries, located in Ontario and Colorado, running at
"As long as we have these (oil-price) differentials we are
seeing, then we will see these types of refinery margins,"
Suncor Chief Executive Steve Williams told analysts. "One of the
comments I would like to make is, it is a very good position for
companies like Suncor to be in, (to) have an integrated business
IMPERIAL REFINING PROFIT DOUBLES
Profit at Imperial Oil Ltd, the Canadian affiliate of Exxon
Mobil, jumped 21 percent to C$1.04 billion, or C$1.22 a share,
from C$859 million, or C$1.01 a share. The result bested the
analysts' average of C$1.08 a share.
Imperial, known for its dominant position in the Alberta oil
sands, will expand that with its new Kearl project in northern
Alberta, due to start up before the end of the year. It also
runs the Esso service station chain across the country.
Analysts said earnings from oil and gas production, which
fell 7 percent to C$498 million were largely in line with
estimates due to lower prices at Syncrude and for natural gas.
However, refining and marketing profit more than doubled to
C$536 million, thanks to wide margins at the company's three
inland refineries - Nanticoke and Sarnia in Ontario and
Strathcona in Alberta. Weak returns at its Dartmouth, Nova
Scotia, refinery, which runs imported oil, has prompted Imperial
to seek a buyer for the facility.
HUSKY TOUTS INTEGRATED MODEL
At Husky, the Canadian oil company, controlled by Hong Kong
billionaire Li Ka-shing, third-quarter profit rose slightly to
C$526 million, or 53 Canadian cents a share, from C$521 million,
or 53 cents a share in the third quarter of 2011.
Adjusted earnings were 52 Canadian cents a share, beating
the average forecast by 12 Canadian cents a share.
The company, known for its Husky and Mohawk-branded gas
stations, is developing major projects, including the C$2.5
billion Sunrise oil sands venture and Liwan gas field in the
south China Sea, both of which it said is on time and on budget.
Overall production fell 8 percent to 285,000 barrels of oil
equivalent a day, due to planned maintenance at the Terra Nova
and White Rose oil fields off the Newfoundland coast.
Like its peers, however, refining ruled the day, with
Canadian downstream operations earning C$103 million, up 14
percent, and U.S. refining, including its two plants in Ohio,
earning C$195 million, up 140 percent.
CEO Asim Ghosh declined to speculate how long the strong
refining environment will last.
"I don't have a crystal ball any better than anybody else's,
but I'm just positioning myself as a company to be in a place
where in choppy markets I can move up and down the value chain
and provide some overall stability," he said.