Rick George, president and chief executive officer of Calgary-based Suncor Energy Inc., didn't so much choose the oil patch as he was born into it. Raised in Brush, Colorado, in the heart of the Denver-Julesburg Basin, he worked there as an oilfield hand and student engineer for a Unocal subsidiary while attending nearby Colorado State University. By the time he received his undergraduate degree in civil engineering from CSU, the Patch had really begun to percolate. "When I graduated from college in 1973, the whole oil industry was booming," recalls George. Responding to this tide of good fortune, he went to work for Texaco in Houston as a downstream project engineer and later, as an international contracts negotiator for the firm in New York. In the meantime, he received a law degree from the University of Houston. Then in 1980, George joined the Pennsylvania-based Sun Co., where he gained experience in project planning, production planning and international exploration. During this period, he also attended the Harvard Business School program for management development. In 1991, George became head of Suncor Energy Inc.-a Canadian company that was 75% owned by Sun Co. and 25% owned by the government of Ontario, at the time. Today, Suncor, listed on the New York and Toronto stock exchanges under the ticker symbol SU, is a fully independent, integrated oil company with a market cap of about C$8 billion, or US$5.5 billion. By contrast, when it completed its initial public offering in 1992, SU had a market cap of C$1 billion, or US$690 million. George, who last November was named "Canada's CEO of the Year" by National Post magazine, talks about the transformation of Suncor Energy since 1991, and his blueprint for the company's growth for the next several years. In no small part, this blueprint relies on completing the company's Project Millennium and increasing oil sands production-a process that involves extracting heavy oil or bitumen from oil sands, then upgrading that bitumen into light-crude products and diesel fuel. Investor What was Suncor like in 1991, when you became its chief executive? George It had conventional E&P operations in western Canada, and an oil sands business in northern Alberta that produced 45,000 to 50,000 barrels per day. But the oil sands business wasn't performing very well, in that it was generating a very low return on capital. Then, cash operating costs in that business were about C$20 per barrel. So we were one of the higher-cost producers worldwide, with a very low-margin business. It's fair to say that, overall, Suncor didn't have a good vision of where it was going, what made it unique and what it was going to do with its oil sands business. Investor Looking at Suncor now, how is it different? George Today, we're a completely independent and refocused oil company. We now produce 115,000 barrels per day from our oil sands business-which represents about 75% of the asset base of the company-at operating costs of around C$11.50 per barrel, or US$7.50. So even if crude oil prices were to drop to US$15, we'd still be generating great cash flow and earnings. What a lot of the industry doesn't realize is that we and Syncrude-the other Canadian oil sands operation-have been able to reduce costs through improvements in technology and higher volumes. Our oil sands operation is a very high-margin, high-return business. In fact, during the past five years, Suncor has averaged more than a 15% return on capital from that business. As a result, we've been able to expand our oil-sands operations. Although more than 50% of our oil sands production last year came from our Steepbank Mine Project in northeastern Alberta, we're currently going through a C$2-billion expansion-Project Millennium. When completed, this project will allow us to increase our daily oil sands production to 220,000 barrels by 2002, and to 225,000 barrels by 2003. Investor What about cash operating costs for this business during the same time? George They'll continue to decline. Our goal for 2002 is to bring operating costs down to C$9.50, or US$6. This should lend itself to improving margins, cash flow and earnings. In essence, what we're trying to do is turn our oil-sands operation into a manufacturing process, where there are no exploration costs or major risks-but huge reserves that can be drawn upon for decades to come. Between our open-pit mining and in-situ, deeper oil sands recovery projects, we have the ability to feed our Fort McMurray plant in northeastern Alberta at the rate of 225,000 barrels per day for more than 50 years-with no decline curve. Investor What's the next step beyond Project Millennium? George Another oil sands project we call Firebag, also in northeastern Alberta. The first stage of this in-situ oil sands project will be the production, by the end of 2004, of an additional 35,000 barrels per day of bitumen, which can be fed into our Fort McMurray plant, then upgraded to light-crude-oil products and diesel fuel. At Firebag, we see recovery potential of more than 5 billion barrels of heavy oil or bitumen. This is just a fraction of the estimated 300 billion barrels of recoverable bitumen in northern Alberta. Our long-term vision is to increase our Alberta oil sands production to about 400,000 to 450,000 barrels per day by 2008. Investor What's the fiscal regime like in northern Alberta, with respect to royalties? George The royalties are much lower on oil-sands production there than on conventional oil production. By 2002 we'll be paying a royalty rate of 1% of revenues to the province of Alberta; conventional oil producers worldwide typically pay royalties of 15% to 20%. Investor Besides the expansion of oil sands production in Canada, you've also begun-as part of your long-range strategy-to transfer this expertise internationally. George That's right. The first step in that direction is our Stuart Oil Shale Project in Queensland, Australia, where there are between 2- and 3 billion barrels of recoverable oil-shale reserves. Last year, we completed a first-stage pilot plant, which should be commissioned this year. It is targeted to initially produce 4,500 barrels per day of light crude from oil shale. I'd caution, however, that this is largely a research and development project, and the viability of transferring our Canadian oil sands technology to this project remains to be proven. Investor Another part of your stated strategic growth plan is integrating Suncor's downstream and upstream businesses. Could you elaborate? George Right now, we have a refining and marketing business in Ontario. There, we control about a 20% share of the retail gasoline market, with our oil sands plant in Alberta feeding about 40,000 to 50,000 barrels of oil to our Ontario refinery, daily. What we're seeking is an additional customer base through potential joint ventures or ownership of downstream assets in the Chicago area and the U.S. Midwest or in the western Denver-Salt Lake City-Anacortes region. By being able to feed these northern parts of the U.S. from our Fort McMurray plant directly by pipeline, Suncor has the potential to increase the value it will be receiving from its growing oil sands production base. If you think about it, roughly 1 million barrels of oil per day are fed from Canada into this northern tier of the U.S. So we're among the natural producers into this market. Thus, when I talk about integration, I'm talking about moving light crude and diesel production from our Alberta oil sands plant into this marketplace by securing access to new industrial customers and refiners. Investor The fourth part of Suncor's long-term growth initiative is a focus on natural gas and renewable energy. Explain. George We have a conventional E&P business in western Canada that produces more than 200 million cubic feet per day of natural gas, and we're planning to stay in that business long term. Investor It looks like you faced some challenges in your E&P operations last year. George Yes. Finding and development costs rose higher than our targets as the result of revised reserve estimates, poor drilling results and higher drilling costs. However, we've recently announced plans to reposition this business to get it back on a more competitive track. This includes reducing upstream expenses by C$18- to $20 million a year and sharpening our focus on natural gas through the ongoing sale of noncore oil properties and assets. In 2000, the sale of such properties in expected to generate more than C$250 million in proceeds. Through such steps, we're looking to achieve at least a 10% return on capital on our natural gas business within five years. Investor What about Suncor's focus on renewable energy? George Early in 2000, we announced plans to invest C$100 million during the next five years on alternative or renewable energy sources. This could include investments in projects aimed at producing fuel from biomass, the conversion of municipal solid waste to energy, recovering methane from landfills, and opportunities in solar and wind power. Investor In light of these initiatives, what kind of company will Suncor be five years from now? George We'll still be largely an oil-sands-dominated company. That's obviously our engine for growth. But on the other hand, we think that other energy sources are going to take a bigger slice of total world energy supply, and we intend to be invested in those sources. So we see ourselves on the way to becoming a full-range, sustainable energy company. Investor Going forward, what level of return on capital is Suncor looking for companywide? George Last year, we had a return on capital of 8.8%. This year, we would expect an improvement to 10% or better, and going forward, 12% to 15%-driven largely by increased returns from our oil sands business, but also improved returns from our refining and marketing operations, as well as our conventional E&P business, which is currently lagging. Investor What steps have you taken in the marketing end of your business to improve returns? George In the past eight years, we've removed about 40% of our retail sites in the Ontario market, while at the same time increasing volume through the remaining sites. That has meant better margins per site. I'd add that our convenience-store sales have also contributed to this improvement. After all, there are better margins on selling potato chips and candy bars than on gasoline. Investor Is there anything about Suncor's story that you feel Wall Street or Bay Street could appreciate better? George Yes, and that's the uniqueness of Suncor. Unlike other oil companies, our oil sands operation in Alberta is a high-return, high-growth, low-cost business, with assured reserves and a much lower risk profile than other oil companies. Also, even though we've had a very good following in the marketplace, some investors recently questioned whether or not we could accomplish the $2-billion Project Millennium expansion without raising equity. We can now safely say that we can get this project done without going that route-which means that our shareholders' investments won't be diluted. Investor I notice that Suncor recently reported a two-for-one stock split. George That's right. This is our second such split; the last one was in 1997. When you consider that our initial-public-offering price in 1992 was C$19 per share, this means that today-taking into account the two stock splits-that same $19 investment in now worth about C$140 per share. Investor What was your return on shareholders' equity last year? George Nearly 11%. Investor Do you see that improving? George Yes, we believe that both our annual return on shareholders' equity and return on capital will move up significantly-to more than 15%-as full production from Project Millennium comes on line in 2002. Moreover, as our oil sands operation becomes a complete manufacturing process, we expect to see our stock price double every five years going forward. Investor Do you see merger or acquisition activity on the horizon? George I would never say never, but Suncor has enjoyed such phenomenal growth during the past decade that I don't see anything on the immediate horizon. Investor Does hedging makes sense for a company like Suncor? George Yes. Suncor is one of the largest hedgers in Canada. And the reason we've pursued this strategy is to make sure that we have the cash available-without raising equity-to finance our Project Millennium. Currently, we've hedged half of our oil production for 2000; 30% for 2001; and about 15% for 2002. Investor Which is more important to investors today-earnings or cash flow? George Earnings. When I talk to investors, they're always very interested in earnings and return on capital. Investor What do you like about coming to work on Monday mornings? George What I love about this business is, if you've got some unique strategies and you can get them to work, you can create a lot of value and really differentiate yourself from other players. That's what makes this job fun. Investor Describe Suncor 10 years ago. George An underachiever. Investor How would you describe it today? George Ambitious. Investor And 10 years from now? George Hopefully, more ambitious.