CALGARY, ALBERTA–(Marketwired – April 27, 2016) – “Suncor’s ability to generate cash flow from operations, combined with the strength of our balance sheet, allowed us to maintain our dividend and continue investing in long-term profitable growth projects, even in the poor price environment we saw in the first quarter,” said Steve Williams, president and chief executive officer. “We continue to capitalize on opportunities, such as increasing our investment in the Syncrude asset, to generate long-term value for our shareholders.”
Highlights of the first quarter of 2016 include:
- Cash flow from operations of $682 million ($0.45 per common share).
- Operating losses were $500 million ($0.33 per common share), driven by low commodity prices, wider bitumen differentials to Western Canadian Select (WCS), weak benchmark refining margins and a Refining and Marketing first-in, first-out (FIFO) loss of $192 million. Net earnings were $257 million ($0.17 per common share).
- Acquired Canadian Oil Sands Limited (COS) on February 5, 2016, adding 128,500 barrels per day (bbls/d) of synthetic crude oil capacity.
- Record production from both Firebag and MacKay River, combined with strong upgrader reliability, resulted in record Oil Sands operations production of 453,000 bbls/d.
- Achieved cash operating costs per barrel in Oil Sands operations of $24.25, a 15% reduction versus the prior year quarter, due to lower costs, driven by the company’s cost reduction initiatives, and increased production.
- Refinery utilization averaged 91% and Refining operating expenses decreased to $5.10 per barrel (bbl), helping to offset weakness in distillate demand and benchmark cracking margins.
- Subsequent to quarter end, Suncor entered into an agreement to acquire an additional 5% interest in Syncrude for $937 million. The acquisition will increase Suncor’s working interest in Syncrude to 53.74%.
Suncor recorded first quarter 2016 operating losses of $500 million ($0.33 per common share) and cash flow from operations of $682 million ($0.45 per common share), compared to operating earnings and cash flow from operations of $175 million ($0.12 per common share) and $1.475 billion ($1.02 per common share), respectively, in the prior year quarter. This reflected the 31% decline in the WTI benchmark price, a 43% decline in the WCS benchmark price, combined with a wider bitumen to WCS differential, as well as a decrease of approximately 40% in benchmark crack spreads, when compared to the first quarter of 2015. Highlights of the first quarter included record Oil Sands operations production, the lowest Oil Sands operations cash operating costs per barrel achieved since 2007 and overall refinery utilization in excess of 90%.
Net earnings were $257 million ($0.17 per common share) for the first quarter of 2016, compared with a net loss of $341 million ($0.24 per common share) for the prior year quarter. Net earnings for the first quarter of 2016 were impacted by the same factors that influenced operating losses described above and also included the impact of a non-cash after-tax foreign exchange gain on the revaluation of U.S. dollar denominated debt of $885 million, compared to an after-tax foreign exchange loss of $940 million in the prior year quarter. Net earnings in the first quarter of 2016 also included $38 million (after tax) for the COS acquisition and integration costs and $90 million (after tax) of non-cash mark to market losses related to interest rate derivatives for future debt issuance. During the first quarter of 2015, the company recognized a tax recovery of $406 million following a decrease in the tax rate in the United Kingdom (U.K.) on oil and gas profits. The net loss in the prior year quarter also included after-tax restructuring costs of $57 million and after-tax insurance proceeds of $75 million.
Suncor’s total upstream production was 691,400 barrels of oil equivalent per day (boe/d) in the first quarter of 2016, compared with 602,400 boe/d in the prior year quarter, with the increase due primarily to an additional 36.74% working interest in Syncrude associated with the COS acquisition on February 5, 2016, and increased Oil Sands operations production.
Oil Sands operations production was 453,000 bbls/d in the first quarter of 2016, compared to 440,400 bbls/d in the prior year quarter, primarily due to increased In Situ production in the first quarter of 2016. Production highlights included 322,300 bbls/d of SCO due to strong upgrader reliability, and record production at both Firebag and MacKay River of 199,000 bbls/d and 36,800 bbls/d, respectively. Oil Sands operations production in the second quarter of 2016 is expected to decrease as a result of a planned turnaround of Upgrader 2, which began at the end of the first quarter of 2016.
Cash operating costs per barrel for Oil Sands operations decreased in the first quarter of 2016 to an average of $24.25/bbl, compared to $28.40/bbl in the prior year quarter, due to lower costs as a result of the company’s cost reduction initiatives, increased production and lower natural gas prices.
“Our cost reduction initiatives are continuing to drive efficiencies across our operations” said Williams. “Record Oil Sands operations production and our focus on sustainable cost savings have allowed us to achieve the lowest Oil Sands operations cash operating costs per barrel since 2007.”
Suncor’s share of Syncrude production increased to an average of 112,800 bbls/d in the first quarter of 2016, compared to prior year quarterly production of 35,200 bbls/d. The increase is predominantly due to the COS acquisition. Quarter-over-quarter production at Syncrude also increased due to higher reliability in the first quarter of 2016, with upgrader utilization increasing to 91%, from 84% in the prior year quarter.
Production volumes in Exploration and Production (E&P) were 125,600 boe/d in the first quarter of 2016, compared to 126,800 boe/d in the prior year quarter, primarily due to natural declines, partially offset by higher production from Golden Eagle.
During the first quarter of 2016, Refining and Marketing began planned maintenance at the Commerce City refinery. Average refinery utilization remained strong at 91% in the first quarter, compared to 95% in the prior year quarter, despite weaker demand and the planned turnaround.
Suncor obtained control of COS on February 5, 2016 by acquiring 72.8% of the outstanding common shares. A further 11.3% of the outstanding shares were acquired on February 22, 2016, with the remaining outstanding COS shares acquired on March 21, 2016. The COS shares were acquired for consideration of 0.28 of a Suncor share for each COS share, valuing the transaction at $6.9 billion at the time of the acquisition, which included COS debt of $2.6 billion.
Subsequent to the quarter end, Suncor entered into a purchase and sale agreement with Murphy Oil Company Ltd. (Murphy Oil), whereby Suncor would acquire Murphy Oil’s 5% interest in the Syncrude oil sands mining and upgrading joint arrangement for $937 million. The acquisition will increase Suncor’s working interest in Syncrude to 53.74%. The transaction is subject to regulatory approval and is anticipated to close by the end of the second quarter of 2016.
Suncor is also on track to achieve the $750 million reduction to its original 2016 capital budget, while maintaining steady progress on key growth projects already under construction, including Fort Hills and Hebron.
“We continue to progress our major growth projects which are expected to begin producing at the end of 2017,” said Williams. “We also continue to look for opportunities to grow our business through acquisitions, by adding assets that fit strategically at competitive valuations.”
Suncor continued to deliver cash returns to shareholders in the first quarter of 2016 through $453 million in dividends, increasing the rate per common share to $0.29, compared to $0.28 per common share in the first quarter of 2015. This represents the 14th consecutive year the company has increased the dividend, period over period.
Oil Sands Operations
Oil Sands operations continued to focus on projects that enhance safety, reliability and environmental performance. Spending in the first quarter was directed towards preliminary work on the Upgrader 2 turnaround, ongoing well pad development at Firebag and MacKay River to maintain existing production levels, tailings management projects at Oil Sands Base, and logistic and storage assets which will support market access for Fort Hills bitumen.
Oil Sands Ventures
The Fort Hills mining project continues to be on schedule with construction activities 55% complete. Key activities during the quarter included procurement of equipment for secondary extraction as well as module fabrication and construction for secondary extraction and utilities. The project is expected to deliver approximately 91,000 bbls/d of bitumen to Suncor’s operations, with first oil expected in the fourth quarter of 2017 and 90% of its planned capacity being reached within twelve months thereafter. Spending at Fort Hills also included advancement of certain early-works sustaining activities that are expected to optimize the mine plan following the commencement of production. The first quarter of 2016 also included an increased share of Syncrude sustaining capital, which was focused on tailings management and preliminary work on planned coker maintenance that will be executed in the second quarter of 2016.
Exploration and Production
Construction of the Hebron project continued in the first quarter of 2016 with first oil expected in late 2017. Suncor’s working interest in the Hebron project was reset on January 1, 2016, decreasing from 22.7% to 21.0%, reducing the company’s share of estimated production to 31,600 bbls/d, at peak production rates.
Exploration drilling at the deepwater Shelburne Basin offshore Nova Scotia continued in the first quarter of 2016. Growth capital also included development drilling activities at Hibernia and Golden Eagle.
Operating (Loss) Earnings Reconciliation(1)
|Three months ended
|Net earnings (loss)||257||(341)|
|Unrealized foreign exchange (gain) loss on U.S. dollar denominated debt||(885)||940|
|Non-cash mark to market loss on interest rate swaps(2)||90||–|
|COS acquisition and integration costs(3)||38||–|
|Impact of income tax rate adjustments on deferred income taxes(4)||–||(406)|
|Operating (loss) earnings(1)||(500)||175|
|(1)||Operating (loss) earnings 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 27, 2016 (the MD&A).|
|(2)||Non-cash loss on the company’s interest rate swaps resulting from a decrease in long-term interest rates and unfavourable foreign exchange.|
|(3)||Transaction and related charges associated with the acquisition of COS.|
|(4)||Adjustments to the company’s deferred income taxes resulting from a decrease in the U.K. tax rate on oil and gas profits from the North Sea.|
|(5)||Restructuring charges related to the cost reduction initiatives.|
|(6)||Business interruption insurance proceeds on the Terra Nova asset in the E&P segment.|