Canadian Oil sands; Suncor, Cenovus, and CNRL; Strategy Lessons to Share.

What strategy have the major oil sands players hired? lessons learned from oil sands pioneers.

Despite of a low political and social risk environment, Canadian oil sands is still under pressure. This is while a handful number of pipeline projects are at negotiation stage to provide higher takeaway capacity. The heavy differential has narrowed from highs of $40/b in 2012 to about half in early 2014, however competition for capital in upstream sector at global scale, uncertainties around the pipeline projects and high capital intensity of oil sands projects stay the main constrains of cluster development.

Several majors strategically shifted their position in oil sands sector from managing partner to non-operating and left the driving seat to a Canadian partner. Portfolio management, strategic focus, company culture, local know-how and cost-structure are noted as drivers. But what Canadian oil sands partners should have in their strategic agenda in 2014?

Cenovus, Suncor, and CNRL are among the top-6 oil sands players in Canada as per WoodMackenzi’s NPV10 peer group ranking (Q1/2014). This article will have a quick look at strategic focus of these Canadian large-caps and will point out few recommendations. Consider this posting as an opening, so please feel free to share your opinion.


Cenovus, Suncor and CNRL Stock performance, March 2014

Cenovus – Execution Excellence

In 2013 Cenovus increased oil sands production by 14%, improved refining utilization rate to 97%, increased heavy crude processing by 12% (to 220,000 bpd), increased Proved bitumen reserved up 8%, pushed total proved reserves up 5% (to 2.3 b.boe), and had a record RRR of 214%. In 2013, 2P reserves grew up 4% to 3.2 b.boe (link).

From Mr. Ferguson’s comments the company intends to focus on improving cash flow in 2014 through prioritization of investments. The inventory of projects got even better when Cenovus received approval for Grand Rapid development (180 kbpd), a 100% in-situ project.

Company’s stock has been on a steady decline over past 20 month but it seems that it is making a nice triangle in Q1/Q2 2014.


Cenovus aims for 500,000 b/d in 2021 (where-to-be). But more importantly company portrays the image of “the Best-in-Class” in oilsands sector (who-you-wanna-be). Cenovus leadership is keen to realize their vision and boost the cashflow through developing in-situ projects with lowest capital-intensity and running them at lowest unit Opex i.e. improving the value-creation engine through execution excellence. Other strategic and tactical measures are:

  • Promoting entrepreneurial approach/culture within the organization (point of accountability, decision process)
  • Accelerating project development cycle (including reservoir delineation)
  • Minimizing project execution cycle (through manufacturing philosophies)
  • Integrating EPC components into the owner’s organization
  • Vertical integration (50% WI in 2 refineries in US, Philips 66)
  • Securing takeaway capacities (200kbpd in Energy East, 175kbpd CPC, 150kbpd to US Gulf coast)

Other strategic considerations for Cenovus would include:

–       Business development (short-term) – With the wealth of know-how in in-situ project development and operations, Cenovus is uniquely positioned to take the advantage of this opportunity and conduct a business development campaign in 2014-2016. Targets can include expanding foot print, adding value through synergies and portfolio optimization. The window of opportunity will be thinner when pipeline projects receive agreements/approvals. Appointing a dedicated BD role at the leadership team (and at the board) could be a good starting point.

–       Global expansion (long term) – Cenovus’s organizational model/philosophies as well as technical knowledge of thermal development are marketable to International markets. A strategic planning on expansion beyond Canadian borders would be a good starting point (more).



Suncor – Integrated Energy Company

Suncor is the largest Canadian integrated operator (also the largest in the oil sands), operating 4 refineries (460 kb/d), with huge mining operations north of Fort McMurray, a 12 per cent interest in the Syncrude Canada Ltd., a 41 per cent stake in Fort Hills mine and steam-driven operations at Firebag and Mackay River.

In 2013 Suncor boost the production by about 24% (33% oilsands offset by shortfall of conventional assets). Another 10% boost is targeted for 2014. The company is quite popular among investment community (Warren Buffet bought 17.7 million shares in 2013) due to steady and attractive dividend payouts. While keeping some of those good traits of small companies, Suncor is structured (once and after merger with Petro Canada) to grow big. In its corporate vocab, there is fair amount of emphasis on sustainable and responsible development. Its renewable portfolio includes wind-farms and bio-fuel (Canada’s largest Ethanol plant located in Ontario) also part of sustainability and carbon management plan. The latter is well integrated into the value chain by injecting Ethanol into Petro Canada gasoline.

Steve Williams Suncor’s president and CEO highlighted financial and investment discipline on top of the agenda for 2014 and the focus in near-term strategy. One could interpret it to Value versus Volumes strategy that the majors have mostly adapted to in 2013. The breakdown of the $7.8b capital program for 2014 suggests a balanced focus on oilsands and conventional assets (offshore UK, Norway and Hebron East coast Canada). Approximately $3.6 billion of the 2014 capital spend is expected to go toward sustaining capital investments focused on improving reliability across the company’s assets, maintaining current production capacities through planned maintenance activities and ensuring the safety and efficiency of existing operations.


Suncor 2014 Budget, Billion $


Company has expanded asset mix and foot print through merger with Petro Canada at the right time (in 2009 when crude price dropped sharply). Post-merger, Suncor divested non-core assets (gas) and focused on oilsands; however the company seems keen to have a balanced approach towards asset mix by expanding operations in East Coast Canada, as well as offshore UK and Norway. Suncor also inherited assets in Libya and Syria.

Suncor smartly optimized the portfolio through partnership with Total (Fort Hills and Joslyn mines and Voyageur upgrader).

Other strategic considerations for Suncor would include:

Operational excellence – In short-term Suncor will continue focusing on improving cashflow through capitalizing on low-cost growth opportunities (debottlenecking).

Business development (short-term) – Similar to Cenovus there is a good opportunity to expand and/or optimize the value of the oilsands portfolio through A&D.

Global expansion (long term) – Expanding globally on learnings from offshore UK and Norway to increase conventional share in production would definitely be a right direction. Given the stability of Suncor’s core business in Canada (as well as UK and Norway) the portfolio can safely accept expansions into mid-risk / high-reward geographical areas (SAM, East AF, MENA). Targeting heavy oil owners outside Canada should also be evaluated.

Canadian Natural Resources

The company has been eager to secure the resource at early stages. This strategy has resulted in a material portfolio of oil sands assets in Clearwater, McMurray, Wabiskaw, Grand Rapid and Carbonates (Saleski). CNRL follows a strategic map of adding 40,000 b/d in-situ production every 2-3 year to a throughput of 500,000 b/d by 2027. At corporate level the portfolio is well balanced both in product mix and geographically, with foot prints in Canada (still the core of the business), offshore west-Arica, and North Sea (2013 AR).


Similar to Suncor, CNRL has few capital intensive projects behind and has got into a better stage in terms of cashflow generation. Active share purchase plan coupled with increasing dividend payout has pushed the share up price steadily.




Some of strategies that CNRL has been successfully implementing are:

  • Promoting a very entrepreneurial culture
  • Positioning i.e. securing land/resource as early as possible; active business development
  • Precise capital allocation to maximize value (ROEC), as well pushing to reduce project execution cycle (fast-tracking)
  • Balanced asset mix, organic vs. acquisition growth
  • Financial discipline
  • Vertical integration

Other strategy considerations for CNRL could include:

From the available information about the company in public domain one can see less emphasize on sustainable development, social responsibility and HSEC (Spill in Cold Lake) as much as on growth and net profit. Focusing on responsible development, HSE and sustainability seem to be a priority. This would require culture development, image improvement, and organizational expansion and developing few key skill sets.

CNRL is certainly on a right track on keeping a balanced product mix  as well as expanding its geographical footprint.



Yahoo Finance, NYSE, 31Mar2014
Company 2013 Annual Report