Teck Resources (TSE:TECK.B) and Suncor Energy (TSE:SU) raise cost estimate for Fort Hills oil sands project

Teck Resources Ltd (TSE:TECK.B) and Suncor Energy Inc (TSE:SU) have increased the cost estimate for their Fort Hills oil sands project.

Following a review of the schedule, project costs and throughput, Suncor, operator of the Fort Hills Energy Limited Partnership, which owns the project, stated that the overall cost of the project is now estimated to be between $16.5bn and $17.0bn, or about 10% more than forecast.

Teck TSE:TECK.B Suncor TSE:SU cost estimate Fort Hills oil sands project

Teck Resources (TSE:TECK.B) and Suncor Energy (TSE:SU) raise cost estimate for Fort Hills oil sands project

Teck Resources (TSE:TECK.B) and Suncor Energy (TSE:SU) raise cost estimate for Fort Hills oil sands project[/caption]While most of the project is progressing in line with the original plan and budget, last year's wildfires in Fort McMurray and construction changes have increased the capital cost estimate for the secondary extraction facility.

The project, located in the Athabasca oil sands region of northeastern Alberta, was more than 76% complete at the end of the fourth quarter of 2016, with two of the six major project areas (mining and infrastructure) turned over to operations. All major plant equipment and materials are now on site, and all major vessels and process modules have been installed. Shovels, trucks and equipment are mobilizing for operations.

According to Teck, the project remains on track to produce first oil in late 2017.

The cost per flowing barrel of bitumen is expected to remain at about $84,000 because nameplate capacity has been increased to 194,000 barrels per day (bpd) from 180,000 bpd.

Suncor holds a 50.8% interest in the Fort Hills Energy Limited Partnership, with 29.2% held by Total E&P Canada Limited and a 20% interest held by Teck.

Suncor's share of Fort Hills' remaining project capital cost is between $1.6bn and $1.8bn, the majority of which will be spent in 2017. Teck's share of project capital costs through to completion is now expected to be $805m, of which approximately $640m will be spent this year.

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Teck Resources posts unexpected Q4 profit

Teck Resources Ltd. (TSE:TCK.B, Mkt cap 5.72B, P/E – , Div/yield 0.05/1.20, EPS -3.27, Shares 566.90M) has surprised analysts by posting a profit in the fourth quarter, despite plummeting prices for all three of its key products: steelmaking coal, copper and zinc.

The Financial Post reports that the analysts, on average, had expected a loss of one cent. However, Vancouver-based Teck, Canada’s largest diversified miner, reported a small adjusted profit on for Q4 of $16 million, or three cents a share.

However, while Teck posted a profit in the fourth quarter on an adjusted basis, it had an overall net loss of $469 million as it reported writedowns due to falling commodity prices.

Teck Resources Red Dog Mine Alaska

Teck Resources Red Dog Mine, Alaska. The company posts unexpected Q4 profit

“This is a cyclical business and down cycles are expected. But this cycle is exceptional in terms of both length and depth,” chief executive Don Lindsay said on a conference call.

The firm has a big few years ahead. While it boasts $1.8 billion of cash on its balance sheet currently and US$3 billion available in a credit facility, a massive 2.9 billion investment into Fort Hills, an oil sands project in Alberta – expected to reach production late next year – causes concern. At current oil prices, Fort Hills would not generate the cash flow Teck expected when it committed to the spending.

Meanwhile, the company has more than US$3.5 billion of debt coming due between 2017 and 2023.

Therefore, it comes as little surprise that Teck is exploring ways to obtain capital, despite having raised nearly $1 billion last year by selling metal streams on two of its mines, with more stream sales in the offing.

Lindsay said it is also open to selling infrastructure assets, but stressed that it has no plans to issue equity and dilute shareholders while the market is so weak.

Vancouver based Teck Resources Ltd. is engaged in the business of exploring, acquiring, developing and producing natural resources. Teck is focused on steelmaking coal, copper, zinc and energy. It explores for copper from its interests in Antamina in Peru, Quebrada Blanca and Carmen de Andacollo in Chile and Duck Pond in Newfoundland. The Company has around 97.5% interest in Highland Valley Copper. The Company produces mined zinc, primarily from its Red Dog mine in Alaska, the Antamina mine in northern Peru, and its Pend Oreille mine in Washington State. Its energy assets in the Athabasca oil sands region of northeastern Alberta include its interests in the Fort Hills oil sands project, Frontier oil sands project in various other oil sands leases in the exploration phase, including the Lease 421 Area. More from Reuters »

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The opinions expressed here are ours alone. They are provided for information purposes only and are not tailored to the needs of any particular individual or company, are not an endorsement, recommendation, or sponsorship of any entity or security, and do not constitute investment advice. We strongly recommend that you seek advice from a qualified investment advisor before making any investment decision.