CALGARY – Shares in Suncor Energy Inc. rose nearly five per cent Tuesday after Canada’s biggest energy company hiked its dividend 54 per cent, announced a $2-billion share buyback and delivered first-quarter operating earnings that beat expectations.
Suncor shares were at $31.02 in late-morning trading on the Toronto Stock Exchange, an increase of $1.38.
Late Monday, Suncor announced that its quarterly dividend, payable June 25, will rise to 20 cents per share from 13 cents.
And chief financial officer Bart Demosky told analysts on a conference call Tuesday that returning more cash will remain a priority.
“Dividends will be reliable. They’ll be sustainable. They will be meaningful in relation to the market and they’re going to be competitive,” he said.
“The market should expect (dividends) to grow with our earnings and cash flow.”
Chief executive officer Steve Williams said Suncor will look at share repurchases when it generates cash over and above what it needs to fund its dividend, sustaining capital and growth.
“We’ve bought back over five per cent of the company in the past 18 months,” he said.
“At current levels, we believe investing in our shares represent excellent value.”
Late Monday, Suncor posted operating earnings that handily beat analyst expectations.
It recorded profits of $1.37 billion, or 90 cents per share — well above the 75 cents per share analysts polled by Thomson Reuters had been expecting.
A year earlier, its operating earnings were $1.32 billion, or 84 cents per share.
Suncor’s oilsands production averaged 357,800 barrels per day in the first three months of the year, a big increase from the 305,700 it churned out a year earlier as its steam-driven Firebag project ramped up production.
Suncor is planning a series of low-cost projects over the next three to four years to boost production by about 100,000 barrels per day, in part by making changes to existing equipment and infrastructure.
“It’s one of the benefits you have when you have the extensive assets that we have on the ground,” said Williams.
“You can start to spot the opportunities where small investments yield high returns.”
The price gap between heavy Canadian crude and the lighter U.S. benchmark has caused headaches for oilsands producers. The crux of the problem is an inability to get their product to the best-paying markets by pipeline.
Demosky said that situation is likely to persist for some time.
“This extreme cycling of crude differentials has become the norm in Western Canada and we fully expect it to continue until such time as supply, demand and takeaway capacity are in balance, which is likely to take several years,” he said.
But companies that produce oil as well as refine it — including Suncor — are at an advantage, as it means a cheaper raw product to run through their refineries.
Suncor’s refining business brought in $782 million in profits in the quarter — a record.
“Suncor’s integrated business model buffers us against the unpredictable market swings, and once again this quarter, we produced solid financial results,” said Demosky.
About a month ago, Suncor said it was scrapping its Voyageur oilsands upgrader because shifting market conditions challenged its economics.
Burgeoning production of light oil from regions such as North Dakota mean it no longer makes economic sense to invest billions into a facility to convert heavy oilsands crude into a lighter product refineries can handle.
Suncor took a $1.49-billion writedown on Voyageur in the fourth quarter of 2012.
Its first-quarter net income of $1.1 billion were hit by an after-tax charge of $127 million related to Voyageur.
The Voyageur upgrader was part of a $1.75-billion partnership inked between Suncor and French energy giant Total S.A. in late 2010.
A decision on whether to go ahead with the companies’ jointly-owned Fort Hills mine is expected later this year, while it’s not known when the fate of their Joslyn oilsands mine will be decided.
Earlier this month, Suncor sold the bulk of its Western Canadian natural gas business to a British-Qatari partnership for $1 billion.
The deal with Britain’s Centrica PLC and Qatar Petroleum International includes conventional properties throughout Alberta, northeastern British Columbia and southern Saskatchewan.
In addition to its vast oilsands holdings, Suncor also has assets in the U.K. North Sea, off Canada’s East Coast, four refineries and a chain of Petro-Canada-branded gas stations.