Suncor Energy delivers a strong quarter and rewards shareholders
Canadian energy giant Suncor Energy delivered a solid second quarter today, despite significantly lower oil prices. Net earnings rose to $729 million in the second quarter, a stark contrast to the $341 million loss in Q1 of this year. The company generated $2.16 billion in cash flow from operations, a 10% drop from the same period last year but a 46% increase from Q1. The second quarter improvement was attributed mostly to much higher oil prices and improved margins in its downstream refining business.
The recent 20% increase in Alberta’s corporate tax rate cost the company $423 million in the second quarter.
OIL SANDS OPERATIONS
Excluding Suncor’s share of Syncrude’s production, oil sands production averaged 423,800 barrels per day (bpd), versus 378,800 bpd in the first quarter of this year. Cash operating costs fell to $28.00 from $34.10 for the same period last year. The 18% drop was attributed to higher production rates and lower natural gas prices. Syncrude contributed an additional 24,900 bpd to the company’s upstream production rates.
The average selling price for bitumen and Synthetic Crude Oil produced from its oil sands operations was $60.81 per barrel in the second quarter, down significantly from the $96.40 per barrel realized for the same period last year. However, second quarter prices were 28% higher than the first quarter of 2015.
Suncor’s oil sands mining operations produced an average of 315,000 bpd in the second quarter, compared to 256,100 bpd for the same period last year. A planned maintenance turnaround was completed at Upgrader 1 in the second quarter. Maintenance of a vacuum unit and a coker unit at Upgrader 2 is set to commence at the end of the third quarter.
The company spent $237 million in capital expenditures in the second quarter, dedicated mostly to maintenance and reliability activities at the mining operation.
Firebag & MacKay River
A planned maintenance shutdown at Firebag reduced output to 168,100 bpd in the last quarter, down 2.5% from the same time last year. The steam-to-oil ratio at Firebag was reduced from 2.9 in 2014 to an average of 2.6 in 2015. The improvement was attributed to improved reservoir performance at the SAGD facility.
Operational improvements at MacKay River boosted production 15% to 31,500 bpd, as compared to the same time last year. Steam-to-oil ratio rose slightly to 3.0 in the second quarter.
All capital expenditures for Suncor's SAGD operations at both Firebag and MacKay River are dedicated to maintaining production. The company did not comment on future expansion plans for either in-situ facility.
Fort Hills Oil Sands Mine
The company reported that the Fort Hills Oil Sands Project remains on schedule with detailed engineering 89% complete and construction 35% progressed by the end of the second quarter. The project schedule remains unchanged with start-up still planned for the end of 2017. Fort Hills will add 73,000 bpd to Suncor’s upstream production with full production expected one year after start-up.
Almost $500 million in capital expenditures was spent on Fort Hills in the last quarter. Fort Hills accounts for almost one-third of Suncor’s total capital expenditures, which is projected to be between $5.8 to $6.4 billion for the full year.
2015 FULL YEAR OUTLOOK
The company revised its 2015 outlook and boosted average production rates to between 550,000 to 595,000 boe/d for the full year. Production from its oil sands operation is expected to be between 410,000 to 440,000 bpd. Operating costs for all of its oil sands operations is expected to average between $28 to $31 per barrel in 2015.
POPLAR CREEK COGENERATION FACILITY
The company recently swapped its Kent Breeze and Wintering Hills wind power facilities for TransAlta’s Poplar Creek Cogeneration Facility which will provide steam and power to Suncor’s operation in Fort McMurray.
The company raised its quarterly dividend by $0.01 (or 4%) to $0.29 per share. Suncor stock (TSX:SU) currently yields about 3.3%.