Suncor posts a steep Q1 operating loss but continues its quest to grow the company
Suncor Energy reported a steeper than expected operating loss in the first quarter but managed to salvage earnings by booking a huge forex gain. The company also dropped a bombshell and announced plans to purchase another 5% stake in the Syncrude Joint Venture, increasing its share to almost 54%
Details of the first quarter results are as follows:
- Operating earnings/loss: -$500 million versus $175 million in Q1/15
- Cash flow from operations: $682 million versus $1.475 billion in Q1/15 (-54%)
- Net earnings: $257 million versus -$341 million in Q1/15
- Total upstream production: 691,400 boe/d versus 602,400 boe/day
The drop in revenues were attributed to a 31% decline in West Texas Intermediate (WTI), a 43% drop in Western Canadian Select (WCS) and a 40% decline in crack spreads (the price difference between refined gasoline and crude oil).
Suncor also booked a $885 million gain on foreign-exchange for US denominated debt which almost completely reversed a $940 forex loss booked in the first quarter of last year. The recent rise in the Canadian dollar helped the company report positive net earnings of $257 million for the first quarter.
The large gain in production is due to the recent purchase of another 37% working interest in the Syncrude operation from Canadian Oil Sands.
OIL SANDS PERFORMANCE
Total production from the oil sands was reported at 453,000 bbl/day, versus 440,000 bbl/day for the previous year/quarter (+3%). Part of the increase was attributed to record production at both the MacKay River and Firebag in-situ facilities:
- Firebag: Q1 average @ 199,000 bbl/day
- MacKay River: Q1 average @ 36,800 bbl/day
Spending for the two SAGD (steam-assisted gravity drainage) operations was focused on ongoing well pad development to maintain existing production levels.
Base Plant Upgrader
Synthetic crude oil (SCO) production averaged 322,300 bbl/day in Q1. The company began a maintenance turnaround on Upgrader 2 late in the first quarter which will decrease SCO production in Q2.
Total operating costs for the oil sands was reported at $24.25 versus $28.40 per barrel, a decline of almost 15% thanks to higher production and lower natural gas prices.
The Fort Hills Oil Sands Mine is 55% complete and remains on schedule for first oil by the end of next year. Key activities during the last quarter included:
- procurement of equipment for secondary extraction
- module fabrication and construction for secondary extraction and utilities
- advancement of certain early-works sustaining activities to facilitate mine growth after start-up.
The project is expected to deliver approximately 91,000 bbl/day of partially de-asphalted bitumen to Suncor's bottom line.
Production at Syncrude was improved from the previous quarter thanks to better upgrader utilization rates (91% versus 84% in Q1/15). Spending at Syncrude was focused on tailings management and planning for a coker maintenance turnaround that will be executed in the second quarter of 2016.
Suncor expects operating costs at Syncrude to average $35 to $38 per barrel of SCO produced.
The company is on track to cut another $750 million from its 2016 capital budget without impacting projects already under construction. Suncor still has to spend another $3.1 billion this year on their portion of Fort Hills and the Hebron platform off the coast of Newfoundland.
Suncor's total 2016 production is expected to average 620,000 to 665,000 bbl/day, a 20% gain over last year thanks to the added volumes from the Syncrude acquisitions. By the year 2019, Suncor expects to reach 800,000 bbl/day of oil production, an impressive 40% gain from last year.
CEO Steve Williams also noted the company continues to shop around for interesting assets that would be a strategic fit. Growth through acquisition is far more cost effective during depressed oil prices. Suncor's recent purchase of a 42% interest in the Syncrude plant (from Canadian Oil Sands and Murphy Oil) works out to $54,000 per barrel of light SCO. The Syncrude acquisition is substantially cheaper than the newly constructed Fort Hills, which will cost the company $71,400 per barrel of heavy bitumen.
The company's CFO also noted the company is hoping to sell $1.5 billion worth of properties to help finance recent acquisitions.
Suncor stock (TSX:SU) pays out a quarterly dividend of $0.29 a share.