Warren Buffett, Steve Williams bet big on Suncor
Tags: Suncor Energy, Warren Buffett
Warren Buffett’s Berkshire Hathaway Inc. and Steve Williams have one thing in common. They both dumped Exxon Mobil Corp. for Suncor Energy Inc.
For Williams, a former Exxon executive who is now the Canadian oil-sands producer’s chief executive officer, Berkshire’s stake in Suncor is a testament to a strategy of cutting costs and investing in its best assets even as the industry confronts a price collapse.
“I’m very proud that Warren has come in so heavily to the stock.” Williams, who’s had “occasional discussions” with the billionaire, said in an interview at Bloomberg’s Calgary bureau on Wednesday. “I’m particularly pleased because I worked for Exxon for 20 years before I came to Suncor, so it’s slightly personal as well.”
Suncor has the highest gross margins among 18 of the world’s largest oil and natural gas producers, four times higher than Exxon’s, data compiled by Bloomberg show. The margins have risen while those of global and Canadian peers declined, according to the data.
Suncor became Berkshire’s biggest oil holding after the company sold all shares in Exxon last year, while increasing its stake in the Calgary-based producer since the second quarter of 2014.
Alan Jeffers, a spokesman for Exxon, declined to comment. Buffett didn’t return a message left with an assistant.
Berkshire owned about 22.3 million shares of Suncor as of the end of the first quarter, up from 13 million at the end of 2013, according to data compiled by Bloomberg. Since the end of 2013, Suncor has declined 4.7 percent.
The shares have failed to keep pace with growing margins as a result of investor concerns that a declining Canadian dollar will erode asset values and delayed pipeline projects will limit market access for Canadian crude, Williams said.
Career Move
Williams, a native of Bristol, England, first saw the oil sands in 2001 when he came to Alberta to talk to Suncor management before joining the company.
“My first impression was that this was one of the wonders of the world,” he said. He was chief financial officer and head of oil sands for Suncor before taking over as CEO from Rick George in 2012.
Williams’ strategy for Suncor is to “make the assets work really well” by improving reliability and lowering costs, he said. The company also is able to boost profit from owning both production facilities and refineries, he said. Suncor reported a first-quarter loss and is expected to return to profit this quarter, according to analysts’ estimates compiled by Bloomberg.
In addition to oil-sands operations, which produced 440,400 barrels a day in the first quarter, Suncor has a chain of retail gasoline stations in Canada and oil and gas assets in other parts of the world, including the North Sea. It also owns and operates four refineries in North America.
Fort Hills
The company is currently building the Fort Hills bitumen mine, a project jointly owned with Total SA and Teck Resources Ltd. that will begin producing oil at the end of 2017. Suncor is also planning as many as 10 steam-assisted projects in the coming years, each one boosting production by as much as 40,000 barrels a day, Williams said.
As production goes up, costs are coming down. Operating costs at Suncor’s oil-sands units averaged C$28 ($23) a barrel in the first quarter, down from C$40 a few years ago, and that may fall further with new technology and improvements to processes. The company said earlier this year it eliminated 1,200 positions and is also working with suppliers to lower costs.
“Ten years ago I think there was a widely held belief that oil sands were at the very top end of the cost curve, and therefore would always be the last resource to be developed,” he said. “I think we’ve made huge progress. The full-cycle capital costs to get at these reserves are no longer at the top end.”
Market Access
Canada’s oil sands have come under scrutiny for their environmental impact, including carbon emissions that are higher per barrel than conventional petroleum production in the U.S. Opposition to their expansion has held up the construction of pipelines including TransCanada Corp.’s Keystone XL and Enbridge Inc.’s Northern Gateway lines.
That’s less of a problem for Suncor because it refines part of its production in Canada. Transportation of its crude is fully covered by contracts until mid-2020, Williams said.
Suncor’s reserves-to-production ratio is the highest among the world’s 18 biggest producers, according to data compiled by Bloomberg.
Buffett “takes a long-term view and is very interested in capital discipline, and he takes a look at management to make sure he can trust them,” Williams said. “My job is long-term shareholder value. I don’t think it’s been fully recognized yet.”
For Williams, a former Exxon executive who is now the Canadian oil-sands producer’s chief executive officer, Berkshire’s stake in Suncor is a testament to a strategy of cutting costs and investing in its best assets even as the industry confronts a price collapse.
“I’m very proud that Warren has come in so heavily to the stock.” Williams, who’s had “occasional discussions” with the billionaire, said in an interview at Bloomberg’s Calgary bureau on Wednesday. “I’m particularly pleased because I worked for Exxon for 20 years before I came to Suncor, so it’s slightly personal as well.”
Suncor has the highest gross margins among 18 of the world’s largest oil and natural gas producers, four times higher than Exxon’s, data compiled by Bloomberg show. The margins have risen while those of global and Canadian peers declined, according to the data.
Suncor became Berkshire’s biggest oil holding after the company sold all shares in Exxon last year, while increasing its stake in the Calgary-based producer since the second quarter of 2014.
Alan Jeffers, a spokesman for Exxon, declined to comment. Buffett didn’t return a message left with an assistant.
Berkshire owned about 22.3 million shares of Suncor as of the end of the first quarter, up from 13 million at the end of 2013, according to data compiled by Bloomberg. Since the end of 2013, Suncor has declined 4.7 percent.
The shares have failed to keep pace with growing margins as a result of investor concerns that a declining Canadian dollar will erode asset values and delayed pipeline projects will limit market access for Canadian crude, Williams said.
Career Move
Williams, a native of Bristol, England, first saw the oil sands in 2001 when he came to Alberta to talk to Suncor management before joining the company.
“My first impression was that this was one of the wonders of the world,” he said. He was chief financial officer and head of oil sands for Suncor before taking over as CEO from Rick George in 2012.
Williams’ strategy for Suncor is to “make the assets work really well” by improving reliability and lowering costs, he said. The company also is able to boost profit from owning both production facilities and refineries, he said. Suncor reported a first-quarter loss and is expected to return to profit this quarter, according to analysts’ estimates compiled by Bloomberg.
In addition to oil-sands operations, which produced 440,400 barrels a day in the first quarter, Suncor has a chain of retail gasoline stations in Canada and oil and gas assets in other parts of the world, including the North Sea. It also owns and operates four refineries in North America.
Fort Hills
The company is currently building the Fort Hills bitumen mine, a project jointly owned with Total SA and Teck Resources Ltd. that will begin producing oil at the end of 2017. Suncor is also planning as many as 10 steam-assisted projects in the coming years, each one boosting production by as much as 40,000 barrels a day, Williams said.
As production goes up, costs are coming down. Operating costs at Suncor’s oil-sands units averaged C$28 ($23) a barrel in the first quarter, down from C$40 a few years ago, and that may fall further with new technology and improvements to processes. The company said earlier this year it eliminated 1,200 positions and is also working with suppliers to lower costs.
“Ten years ago I think there was a widely held belief that oil sands were at the very top end of the cost curve, and therefore would always be the last resource to be developed,” he said. “I think we’ve made huge progress. The full-cycle capital costs to get at these reserves are no longer at the top end.”
Market Access
Canada’s oil sands have come under scrutiny for their environmental impact, including carbon emissions that are higher per barrel than conventional petroleum production in the U.S. Opposition to their expansion has held up the construction of pipelines including TransCanada Corp.’s Keystone XL and Enbridge Inc.’s Northern Gateway lines.
That’s less of a problem for Suncor because it refines part of its production in Canada. Transportation of its crude is fully covered by contracts until mid-2020, Williams said.
Suncor’s reserves-to-production ratio is the highest among the world’s 18 biggest producers, according to data compiled by Bloomberg.
Buffett “takes a long-term view and is very interested in capital discipline, and he takes a look at management to make sure he can trust them,” Williams said. “My job is long-term shareholder value. I don’t think it’s been fully recognized yet.”
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