Suncor Energy Reports First Quarter Results
OREANDA-NEWS. Unless otherwise noted, all financial figures are unaudited, presented in Canadian dollars (CAD), and have been prepared in accordance with International Financial Reporting Standards (IFRS), specifically International Accounting Standard (IAS) 34 Interim Financial Reporting as issued by the International Accounting Standards Board. Production volumes are presented on a working interest basis, before royalties, unless noted otherwise. Certain financial measures referred to in this document (operating earnings, cash flow from operations, free cash flow, return on capital employed (ROCE) and Oil Sands cash operating costs) are not prescribed by Canadian generally accepted accounting principles (GAAP). See the Non-GAAP Financial Measures section of this news release. References to Oil Sands operations, production and cash operating costs exclude Suncor's interest in Syncrude's operations.
"We delivered the best financial quarter on record," said Steve Williams, president and chief executive officer. "Investments made at Oil Sands increased our operational flexibility, allowing us to produce higher margin barrels. Our integrated model combined with improved market access allowed us to maximize the value of every barrel we produced."
Record operating earnings of USD 1.793 billion (USD 1.22 per common share), including record operating earnings for Refining and Marketing, and net earnings of USD 1.485 billion (USD 1.01 per common share).
Record cash flow from operations of USD 2.880 billion (USD 1.96 per common share).
Free cash flow of USD 3.226 billion for the twelve months ended March 31, 2014.
Strong upgrader reliability drove a quarterly production record for synthetic crude oil (SCO) of 312,200 barrels per day (bbls/d), including a strong sweet mix and overall production of 389,300 bbls/d for Oil Sands operations.
Increased pipeline and rail capacity has further strengthened our integrated model and access to better market prices.
Suncor Energy Inc. delivered record-breaking financial results in the first quarter of 2014, including record operating earnings of USD 1.793 billion (USD 1.22 per common share) and record cash flow from operations of USD 2.880 billion (USD 1.96 per common share), compared to USD 1.367 billion (USD 0.90 per common share) and USD 2.284 billion (USD 1.50 per common share), respectively, in the first quarter of 2013. These results were led by strong upstream price realizations driven in part by favourable foreign exchange and increased inland crude pricing. In addition, strong upgrader reliability and operational flexibility contributed to record SCO production and a favourable production mix at Oil Sands operations. Suncor's integrated model and increased market access enabled the company to optimize upstream price realizations and capture record refining margins, despite a decrease in benchmark crack spreads. These factors were partially offset by lower production in the Exploration and Production segment and higher natural gas prices.
For the twelve months ended March 31, 2014, free cash flow increased to USD 3.226 billion, compared to USD 2.638 billion for the twelve months ended March 31, 2013.
Net earnings were USD 1.485 billion (USD 1.01 per common share) for the first quarter of 2014, compared with net earnings of USD 1.094 billion (USD 0.72 per common share) for first quarter of 2013. Net earnings for the quarter were impacted by the inclusion of an after-tax foreign exchange loss on the revaluation of U.S. denominated debt of USD 308 million, compared to USD 146 million in the prior year quarter, in addition to the factors that affected operating earnings. Net earnings for the first quarter of 2013 also included an after-tax charge of USD 127 million as a result of not proceeding with the Voyageur upgrader project.
Suncor's strong quarterly results were supported by a more profitable portfolio comprised of nearly 100% crude-oil weighted production, compared to 92% in the prior year quarter. Suncor's total upstream production was 545,300 barrels of oil equivalent per day (boe/d) in the first quarter of 2014, a decrease from 596,100 boe/d in the first quarter of 2013, reflecting the sale of the conventional natural gas business and the shut-in of production in Libya, which was partially offset by higher production in Oil Sands.
Production volumes for Oil Sands operations increased to 389,300 bbls/d in the first quarter of 2014, compared to 357,800 bbls/d in the prior year quarter. The company reached a SCO production record of 312,200 bbls/d in the first quarter of 2014, which included a 21% increase in sweet production compared to the prior year quarter due to improved upgrader reliability. Bitumen supply from the company's mining and in situ operations increased over the prior year quarter due to completion of the Firebag ramp up and commissioning of hot bitumen infrastructure assets that enabled the company to unlock previously constrained mining capacity. However, production was tempered by unplanned maintenance in mining, extraction and at MacKay River, planned six-week coker maintenance that began in March and, to a lesser extent, continued third-party natural gas curtailments. Suncor took advantage of its operational flexibility by redirecting Firebag bitumen to the upgrader during the unplanned maintenance to maximize the production of higher value barrels.
Cash operating costs per barrel (bbl) for Oil Sands operations in the first quarter of 2014 increased to an average of USD 35.60/bbl, compared to USD 34.80/bbl in the first quarter of 2013, primarily due to a USD 2.10/bbl increase in natural gas costs.
"We continue to deliver on our commitment to operational excellence through improved reliability at our Oil Sands upgraders," said Williams. "This quarter, we achieved nearly 90% utilization at our upgraders which drove a SCO production record, all while performing planned maintenance activities in the latter part of the quarter. We will continue to focus on reliability improvements at our extraction operations and across our full suite of assets to drive additional value."
Suncor's share of Syncrude production increased to 35,100 bbls/d in the first quarter of 2014 from 31,200 bbls/d in the first quarter of 2013, due to improved reliability in the first quarter of 2014.
Production volumes for the Exploration and Production segment decreased to 120,900 boe/d in the first quarter of 2014, compared to 207,100 boe/d in the same period of 2013, primarily due to the sale of the company's conventional natural gas business and the shut-in of production in Libya, partially offset by higher production from East Coast Canada and Buzzard.
The Refining and Marketing segment continued to demonstrate strong reliability in the first quarter of 2014 with refinery utilization of 96%, consistent with the prior year quarter. The company completed a four-week planned maintenance event at the Commerce City refinery in the first quarter of 2014.
The company allocates its capital according to a clear set of priorities: ensuring sustainable and reliable operations, investing in profitable growth and delivering strong returns to shareholders through dividends and share repurchases. In the first quarter of 2014, Suncor delivered value to shareholders through USD 384 million in share repurchases and USD 338 million in dividends (USD 0.23 per common share), representing an increase of greater than 70% over dividends paid in the prior year quarter.
Suncor also received approval in the first quarter of 2014 to purchase for cancellation an additional USD 1.0 billion worth of common shares under its share repurchase program. As at April 21, 2014, the total amount remaining for repurchase under the current program was USD 1.4 billion.
Investing in Integration and Market Access
"The successful implementation of our long-term market access strategy positions us well for the future," said Williams. "We secured new pipeline capacity to the U.S. Gulf Coast and increased our ability to transport inland priced crude by rail to the Montreal refinery. The anticipated reversal of Enbridge's Line 9, combined with increased rail access is expected to further improve profitability of the Montreal refinery by increasing the company's flexibility to transport 100% inland crudes to the refinery."
Suncor's strong financial quarter was in part due to further integration and market access initiatives that ramped up in the first quarter of 2014. Refining and Marketing increased rail shipments of inland priced crudes to the Montreal refinery and rail shipments are expected to reach capacity of approximately 35,000 bbls/d in the second quarter of 2014. The company also started transporting heavy crude on its capacity on TransCanada's Gulf Coast pipeline which has provided more than 70,000 bbls/d of increased access to U.S. Gulf Coast pricing for both light and heavy crudes. The company's integrated model and strong market access position resulted in Suncor capturing global-based pricing on almost 96% of its upstream production in the first quarter of 2014.
On March 6, 2014, Enbridge's Line 9 pipeline received regulatory approval to reverse a portion of the pipeline that starts in northern Ontario and ends in Montreal. The anticipated reversal of Line 9 combined with increased rail access to the East is expected to provide the company with the flexibility to supply its Montreal refinery with a full slate of inland priced crude in 2015.
Oil Sands Operations
At Oil Sands, upgrader reliability has improved following the Upgrader 1 turnaround in 2013 and other recent maintenance activities. Planned maintenance activity in 2014 is expected to be minimal in comparison to previous years, with a focus on sustaining and steadily improving asset reliability.
Investment in the tailings management process and water management strategy continues to be an area of focus. As part of the water management strategy, Suncor plans to commission a water treatment plant in the second quarter of 2014, which is expected to reduce freshwater withdrawal, increasing the reuse and recycling of waste water.
In April 2014, the company reached a milestone by achieving first steam on the well pads associated with the MacKay River facility debottleneck project, with first oil expected in the third quarter of 2014. The project is intended to increase production capacity by approximately 20% for a total capacity of 38,000 bbls/d by the end of 2015. Suncor also continues to work towards a 2014 sanction decision of the MacKay River expansion project, which is targeted to have an initial design capacity of approximately 20,000 bbls/d, with first oil expected in 2017. In addition, Suncor continues to advance further debottlenecking initiatives of logistics infrastructure and Firebag facilities.
Oil Sands Ventures
Fort Hills project activities were focused on detailed engineering, procurement and the ramp up of field construction activities. The project is expected to provide Suncor with approximately 73,000 bbls/d of bitumen, with first oil expected in the fourth quarter of 2017 and 90% of its planned capacity achieved within twelve months.