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Suncor hits record production but declares a loss in the first quarter of 2015

Suncor hits record production but declares a loss in the first quarter of 2015

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Despite a very strong quarter operationally, energy giant Suncor Energy failed to turn a profit in the first quarter of 2015. Cash flow from operations was reported at $1.475 billion, slightly below the previous quarter. However, free cash flow declined 73% to $856 million resulting in a net loss of $341 million. The losses were attributed to lower oil prices, a weak Canadian dollar and several accounting charges.

The company credited good reliability for its record oil sands output of 440,400 barrels per day (bpd) in the first quarter. Operating costs in its oil sands operations fell 20% to $28.40 per barrel, mostly attributed to lower natural gas prices and improvements in maintenance scheduling.

COST SAVINGS UPDATE

Suncor had previous announced a 2-year cost savings plan to reduce its operating budget by $600 to 800 million. CEO Steve Williams noted most of those savings have already been realized ahead of schedule. The company is also on track to reduce 2015 capital expenditures by $1 billion without impacting construction at the Fort Hills or Hebron projects.

PRODUCTION GROWTH FROM THE OIL SANDS (PHOTO COURTESY SUNCOR ENERGY)

PRODUCTION GROWTH FROM THE OIL SANDS
(PHOTO COURTESY SUNCOR ENERGY)

OIL SANDS OPERATIONS

BASE MINE

Production at the Suncor base plant averaged 318,300 bpd for the first quarter, up from 290,600 bpd for the same time last year. The difference was attributed to fewer maintenance outages experienced in the beginning of this year.

There were no major maintenance turnarounds announced for the remainder of this year. Maintenance on the U1 coker began in the first quarter and is expected to be completed by the by middle of this year. Another coker and vacuum unit (in U2) will undergo a 7 week maintenance turnaround later in the year.

FIREBAG

Production at Firebag was reported at 188,700 bpd, up from 164,100 bpd for the same period last year. This increase was attributed to improved reservoir performance. The steam-to-oil ratio (SOR) dropped from 3.1 to 2.6 over the past 12 months. A 4 week maintenance turnaround is planned for sometime in the spring.

MACKAY RIVER

Production at MacKay River increased from 23,000 to 29,300 bpd over the past year. The gain was attributed to increased production from the completed debottleneck project and fewer maintenance outages. The steam-to-oil ratio rose slightly from 2.7 to 2.8 due to the newly commissioned wells. A three week maintenance turnaround is planned for sometime in the fall.

The company also noted they will lead a field trial of CO2 co-injection with steam into SAGD reservoirs at MacKay River sometime next year. The project is currently in the design phase and is part of Suncor's continued focus on lowering carbon emissions and improving SOR at its SAGD operations.

FORT HILLS

The Fort Hills Mining Project remains on track for first oil at the end of 2017. The company provided the following updates:

  • Detail engineering was reported 75% complete with construction activities progressed 25%.
  • Key activities for this quarter included procurement of secondary extraction equipment and completion of administration, maintenance and lodging facilities.

Once fully operational, Fort Hills will add another 73,000 bpd of production to Suncor's bottom line. The company did not provide an update on capital costs except to note their portion of the project is expected to cost $5.5 billion from sanction to first oil. Suncor currently owns a 40.8% working interest in the Fort Hills project.

GRAPHICS COURTESY SUNCOR ENERGY

2015 FULL YEAR OUTLOOK

The company reduced its full year outlook for oil prices, adjusting West Texas Intermediate to US$54 per barrel and Western Canadian Select to US$40 per barrel. Full year oil sands production is expected to average between 410,000 and 440,000 bpd at an average operating cost of $30 to 33 per barrel.

Suncor stock (SU) trades on the TSX and NYSE and currently pays a dividend of $0.28 per share per quarter, yielding approximately 2.8%.

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