This integrated oil producer haslowered its production expenses and upped its output—helping to position it for growth as oil prices recover.
SUNCOR ENERGY INC. (Toronto symbol SU; www.suncor.com) is Canada’s largest integrated oil company. Oil production supplies about 40% of its overall revenue. The remaining 60% comes from its four oil refineries (three in Canada and one in Colorado) and 1,500 Petro-Canada gas stations.
In March 2016, the company completed its all-stock acquisition of Canadian Oil Sands Ltd.; that firm owns 36.74% of the Syncrude oil sands project in northern Alberta. If you include Canadian Oil Sands’ debt of $2.6 billion, the total sales price was $7.1 billion.
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Suncor later bought another 5.0% of Syncrude’s outstanding shares for $937 million. That raised its stake to 53.74%.
Imperial Oil (see page 111) owns 25.0% of Syncrude, and continues to operate the facility. However, Suncor’s expertise should help improve the project’s efficiency and profits.
In the three months ended September 30, 2016, Suncor’s average daily production rose 28.6%, to 728,100 barrels from 566,100 a year earlier. That additional Syncrude stake contributed to the gain.
However, lower crude prices offset the higher production. As a result, the company’s revenue in the quarter fell 2.2%, to $7.4 billion from $7.6 billion.
Energy Stocks: $102 million writedown of Nova Scotia project
Earnings in the quarter fell 15.6%, to $346 million from $410 million. That’s mainly due to the $102 million writedown on an offshore oil project south of Nova Scotia. Due to more shares outstanding, per-share earnings dropped at a faster rate of 25.0%, to $0.21 from $0.28 a year earlier. Cash flow per share declined 6.2%, to $1.22 from $1.30.
Suncor is doing a good job cutting its costs in response to weak oil prices. Its average cost per barrel fell 18.0% in the quarter, to $22.15 from $27.00 a year ago.
Despite weak oil prices, the company continues to build its Fort Hills oil sands project, located 90 kilometres north of Fort McMurray. It owns 50.8% of Fort Hills; France’s Total SA holds 29.2%, while Teck Resources owns the remaining 20.0%.
Suncor’s share of Fort Hills’s development costs is $6.9 billion. The operation is now 70% complete, and should start up in late 2017. It will add 91,000 barrels a day to Suncor’s crude production.
For all of 2016, the company expects to spend between $5.8 billion and $6.0 billion on exploration and upgrades.
To help cover those costs, Suncor is selling some of its less-important assets. They include its lubricants business, which the company has agreed to sell for $1.125 billion.
Suncor’s balance sheet remains strong. As of September 30, 2016, long-term debt was $15.8 billion. That’s a manageable 23% of its market cap. The company also held cash of $3.1 billion, or $1.86 a share.
Suncor’s projected cash flow per share will likely rise from $4.60 a share in 2016 to $6.10 in 2017. The stock trades at just 6.7 times the 2017 forecast. The company’s $1.16-a-share dividend seems safe; it yields 2.8%.
Thanks. Suncor seems to be putting a lot into its Fort Hills project. I think this will allow it to boost production significantly when prices re-grow to their past glory.
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Thanks. Suncor seems to be putting a lot into its Fort Hills project. I think this will allow it to boost production significantly when prices re-grow to their past glory.