Higher cash costs and lower production for Suncor

A drop in production at its Fort McMurray oil sands operation has prompted Suncor Energy (SU-T) to lower its 2007 production forecast to 255,000 to 265,000 barrels per day (bpd) from a maximum forecast of 270,000 bpd.

The company, which pioneered the worlds first commercially successful oil sands operation in 1967, produced an average of 248,200 bpd during the first quarter but that number dropped further in April to 240,000 bpd due to unexpected maintenance.

Suncor has also upped its cash operating cost target for the year to $23.50 to $24.50 per barrel from $21.50 to $22.50.

The company reported an even higher cash cost of $26.30 per barrel in the first quarter compared to $19.05 last year, which Suncor blames on higher operating expenses paired with lower production volume.

Earnings in the first quarter were $551 million compared to $713 million for the same period the year before. After adjusting for unrealized foreign exchange gains and $205 million in insurance proceeds, Suncors net earnings were $509 million in 2006.

The insurance proceeds came from a fire at the oil sands facility in January 2005, so the companys net earnings actually increased.

Suncor attributes the increase to strong refining and retail margins in its downstream operations, lower Alberta Crown royalty expenses and lower effective federal and provincial income taxes.

For its upstream processing, the company produced an average of 283,100 barrels of oil equivalent (boe) per day compared to 300,300 boe per day for the same period last year.

Natural gas production was down slightly in the first quarter at 209 million cubic feet equivalent (mcfe) per day compared to 215 mcfe during the same period last year.

Suncor is currently upgrading its existing oil sands operation so it can increase production to 350,000 bpd by 2008, ramping up to 550,000 bpd by 2012. At the end of May, the company will shut down the Upgrader 2 facility for about 50 days as part of the upgrade. The shutdown has been reflected in the companys operational targets for the year.

Upgrader 1 will continue at a normal production rate, however, the company warned that labour or material supply issues, or a longer than planned shutdown could impact production targets.