CALGARY, ALBERTA–(Marketwired – April 26, 2017) – “Our Oil Sands operations and offshore assets posted impressive production results and continued low operating costs, generating industry-leading cash flow per barrel,” said Steve Williams, president and chief executive officer. “Our Refining and Marketing segment also delivered another strong quarter, contributing to companywide total funds from operations of over $2.0 billion.”
- Funds from operations of $2.024 billion ($1.21 per common share) driven primarily by improved crude oil pricing combined with strong upstream production and lower companywide operating costs. Cash flow provided by operating activities, which includes changes in non-cash working capital, was $1.628 billion ($0.98 per common share).
- Operating earnings of $812 million ($0.49 per common share) and net earnings of $1.352 billion ($0.81 per common share).
- Oil Sands operations production of 448,500 barrels per day (bbls/d) included an increase in higher margin synthetic crude oil (SCO) production compared to the prior year quarter. Oil Sands operations cash operating costs per barrel (bbl) decreased to $22.55 for the first quarter of 2017, a 7% improvement over the prior year quarter and a 20% improvement over the first quarter of 2015.
- Syncrude production increased to 142,100 bbls/d from 112,800 bbls/d in the prior year quarter, due to additional ownership interests acquired during 2016, partially offset by an incident at Syncrude’s Mildred Lake facility.
- Exploration and Production (E&P) increased production to 134,500 barrels of oil equivalent per day (boe/d) from 125,600 boe/d in the prior year quarter.
- Refining and Marketing (R&M) crude throughput improved to 429,900 bbls/d from 420,900 bbls/d in the prior year quarter.
- Suncor plans to repurchase up to $2.0 billion of the company’s shares over the next twelve months, signifying the company’s ability to generate cash flow and confidence in the underlying value of the company.
Suncor recorded first quarter 2017 operating earnings of $812 million ($0.49 per common share) compared to a $500 million operating loss ($0.33 per common share) in the prior year quarter. Highlights of the quarter included improved crude price realizations combined with strong upstream production, an R&M first-in, first-out (FIFO) gain and lower companywide operating costs. Additional Syncrude production resulting from working interests acquired during 2016 was partially offset by the impact of decreased production associated with an incident at Syncrude’s Mildred Lake facility, which occurred late in the first quarter of 2017.
Funds from operations were $2.024 billion ($1.21 per common share) compared to $682 million ($0.45 per common share) in the first quarter of 2016 and were impacted by the same factors noted in operating earnings above.
Net earnings were $1.352 billion ($0.81 per common share) in the first quarter of 2017, compared with $257 million ($0.17 per common share) in the prior year quarter. Net earnings for the first quarter of 2017 included an unrealized after-tax foreign exchange gain of $103 million on the revaluation of U.S. dollar denominated debt and after-tax gains of $437 million on the sale of the company’s lubricants business and its interest in the Cedar Point wind facility. Net earnings in the prior year quarter included an unrealized after-tax foreign exchange gain of $885 million on the revaluation of U.S. dollar denominated debt, an after-tax charge of $38 million for costs associated with the acquisition and integration of Canadian Oil Sands Limited (COS), and a non-cash after-tax loss of $90 million on forward interest rate derivatives.
Suncor’s total upstream production was 725,100 boe/d in the first quarter of 2017, compared with 691,400 boe/d in the prior year quarter, with the increase primarily attributed to the additional 41.74% ownership interest in Syncrude acquired during 2016 and increased E&P production, partially offset by the incident at Syncrude’s Mildred Lake facility that occurred late in the first quarter. Syncrude has advanced its planned second quarter turnaround to help mitigate the impact of the incident and expects to return to normal operating rates during the second quarter.
Oil Sands operations production was 448,500 bbls/d in the first quarter of 2017, compared to 453,000 bbls/d in the prior year quarter, with strong reliability in both quarters. SCO production improved to 332,800 bbls/d from 322,300 bbls/d in the prior year quarter and was offset by an associated decrease in non-upgraded bitumen. Upgrader utilization at Oil Sands operations improved to 95%, compared to 92% in the prior year quarter, as a result of lower unplanned maintenance.
Oil Sands operations cash operating costs per barrel decreased in the first quarter of 2017 to $22.55, compared to $24.25 in the prior year quarter, due to lower operating expenses resulting from the company’s continued focus on cost reductions more than offsetting higher natural gas input costs and lower production volumes.
Suncor’s share of Syncrude production was 142,100 bbls/d in the first quarter of 2017, compared to 112,800 bbls/d in the prior year quarter. The increase is attributed to additional working interests acquired partway through the first quarter of 2016 and the second quarter of 2016, partially offset by the facility incident late in the first quarter of 2017. As a result of the incident, upgrader reliability decreased to 75%, from 89% in the prior year quarter. Syncrude cash operating costs per barrel in the first quarter of 2017 were $45.15, an increase from $31.35 in the prior year quarter due to the loss of production combined with higher maintenance and natural gas input costs.
“Our commitment to operational excellence remains a top priority and we will continue to seek ways to become more efficient, including development of regional synergies with Syncrude,” said Williams. “We were able to partially mitigate the impact of the Syncrude incident by making use of Suncor’s operational flexibility and that’s an indication of the future benefits of integration.”
Syncrude has developed a detailed repair schedule and return to service plan that includes the completion of a planned turnaround which was advanced in order to minimize the impact of the outage. Restart of pipeline shipments at approximately 50% capacity is expected in early May, with production expected to return to full rates by the end of June. The plant is currently operating at reduced rates and Suncor will continue to assist in inventory management.
Production volumes in E&P increased to 134,500 boe/d in the first quarter of 2017, compared to 125,600 boe/d in the prior year quarter, primarily due to production from new wells at Hibernia and reliability improvements and reservoir optimization at Terra Nova, partially offset by natural declines at Buzzard.
Average refinery crude throughput increased to 429,900 bbls/d, compared to 420,900 bbls/d in the prior year quarter due to lower planned maintenance and improved performance at the Edmonton and Montreal refineries in the first quarter of 2017. Average refinery utilization in the first quarter of 2017 improved to 93% from 91% in the prior year quarter.
The disciplined execution of Suncor’s 2017 capital program will focus on bringing Suncor’s major growth projects, Fort Hills and Hebron, to first oil by the end of the year, while continuing to invest in the safety, reliability and efficiency of the company’s operating assets.
Construction of the Fort Hills project exceeded 80% at the end of the first quarter of 2017, with the mining, ore processing plant and key infrastructure assets being handed over to operations in the period. Activity in the quarter also included the readying of primary extraction for handover to operations and continued development of the secondary extraction facilities. Expenditures in the first quarter of 2017 were also focused on early-works sustaining activities that will support the execution of the Fort Hills mine and tailings plan following the commencement of production.
Significant progress continued on the Hebron project in the first quarter of 2017, with the completed platform ready to be towed out to the final site in the second quarter. First oil remains on track for late 2017. Activity in the first quarter also included continued development drilling at Hibernia and White Rose.
“Significant progress continues to be made on Hebron and Fort Hills, with both projects on track for first oil at the end of 2017,” said Williams. “The Hebron platform will be towed out to the production site as planned in the second quarter when weather conditions are optimal. With peak Fort Hills construction activity now behind us, we will continue to progress the phased commissioning of the project throughout the year.”
Oil Sands operations continued to focus on ensuring safe, reliable and efficient execution of operations in the first quarter of 2017 and further progress on the East Tank Farm Development. Capital spending also included preparation for planned maintenance at Upgrader 2 and a turnaround at Firebag, both of which are scheduled to be completed in the second quarter of 2017.
Syncrude sustaining capital in the first quarter of 2017 was primarily focused on key reliability, safety and environmental projects, including advancement of an upgrader turnaround in response to the incident that occurred late in the first quarter of 2017.
During the first quarter of 2017, the company aligned with other Syncrude owners on a framework to drive operating efficiencies, improve performance and develop regional synergies through integration. The incident at Syncrude has accelerated the implementation of integration activities, with the flexibility of Suncor’s logistics network and processing capabilities being leveraged to handle volumes of intermediate sour Syncrude production to assist in inventory management, allowing certain Syncrude assets to run at partial rates and reduce the impact of restart activities.
Suncor successfully closed the sale of both its Petro-Canada lubricants business and its interest in the Cedar Point wind facility for total proceeds of $1.4 billion and net after-tax gains of $437 million. Subsequent to the end of the first quarter, the proceeds from divestments were used towards the repayment of US$1.25 billion 6.10% notes originally scheduled to mature on June 1, 2018.
|Operating Earnings (Loss) Reconciliation(1)|
|Three months ended
|Net earnings||1 352||257|
|Unrealized foreign exchange gain on U.S. dollar denominated debt||(103)||(885)|
|Gain on significant disposals(2)||(437)||–|
|Non-cash mark to market loss on interest rate swaps and foreign currency derivatives(3)||–||90|
|COS acquisition and integration costs(4)||–||38|
|Operating earnings (loss)(1)||812||(500)|
|(1)||Operating earnings (loss) is a non-GAAP financial measure. All reconciling items are presented on an after-tax basis. See the Non-GAAP Financial Measures Advisory section of Suncor’s Management’s Discussion and Analysis dated April 26, 2017 (the MD&A).|
|(2)||Gain of $354 million related to the sale of the company’s lubricants business in the R&M segment, combined with a gain of $83 million related to the sale of the company’s interest in the Cedar Point wind facility in the Corporate segment.|
|(3)||Non-cash mark to market loss on forward interest rate swaps and foreign currency derivatives resulting from changes in long-term interest rates and foreign exchange rates in the Corporate segment.|
|(4)||Transaction and related charges associated with the acquisition of COS in the Corporate segment.|
Suncor has updated production and other information in its 2017 corporate guidance, previously issued on November 17, 2016. The full year outlook range for Syncrude production has been updated from 150,000 – 165,000 bbls/d to 135,000 – 150,000 bbls/d and the full year outlook range for Syncrude cash operating costs has been updated from $32.00 – $35.00/bbl to $36.00 – $39.00/bbl, to reflect the facility incident that occurred late in the first quarter of 2017. In addition, the full year outlook range for E&P production has been updated from 95,000 – 105,000 boe/d to 110,000 – 120,000 boe/d due to improved asset performance, resulting in no change to the full year outlook range for total Suncor production.
The full year outlook range for Syncrude Crown Royalties has been updated from 1% – 3% to 3% – 6%. For further details and advisories regarding Suncor’s 2017 revised corporate guidance, see suncor.com/guidance.
Normal Course Issuer Bid
Subsequent to March 31, 2017, the Toronto Stock Exchange (TSX) accepted a notice filed by Suncor of its intention to commence a new Normal Course Issuer Bid (NCIB) to purchase and cancel up to $2.0 billion of the company’s shares beginning on May 2, 2017 and ending on May 1, 2018 through the facilities of the TSX, New York Stock Exchange and/or alternative trading platforms. The actual number of common shares that may be purchased and the timing of any such purchases will be determined by Suncor. Suncor believes that, depending on the trading price of its common shares and other relevant factors, purchasing its own shares represents an attractive investment opportunity and is in the best interests of the company and its shareholders. The company does not expect the decision to allocate cash to repurchase shares will affect its long-term growth strategy.