Unless otherwise noted, all financial figures are unaudited,
presented in Canadian dollars (Cdn$), 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, except for Libya, which is on an
entitlement basis. Certain financial measures referred to in this
news release (funds from operations, operating earnings (loss), Oil
Sands operations cash operating costs and Syncrude 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 exclude
Suncor's interest in Syncrude's operations.
“Strong performance in both our upstream and downstream operations
combined to generate record quarterly funds from operations of more
than $3 billion,” said Steve Williams, president and chief
executive officer. “This was significantly higher than our capital
and dividend commitments, allowing us to reduce long-term debt and
return additional value to shareholders through more than $800
million in share repurchases.”
- Funds from operations of $3.016 billion ($1.83 per common
share) represents a new quarterly record for the company. Cash flow
provided by operating activities, which includes changes in
non‑cash working capital, was $2.755 billion ($1.67 per
common share).
- Operating earnings of $1.310 billion ($0.79 per common
share) and net earnings of $1.382 billion ($0.84 per
common share).
- Upstream quarterly production was 736,400 barrels of oil
equivalent per day (boe/d). Production highlights included record
Firebag production and upgrader reliability of greater than 90% at
both Oil Sands operations and Syncrude.
- At Fort Hills, the first of three secondary extraction trains
was successfully brought online subsequent to the end of the
quarter and paraffinic froth treated bitumen is now being produced
and shipped to market.
- Hebron production began ahead of schedule and is ramping
up.
- Oil Sands operations cash operating costs per barrel (bbl) were
$24.20, compared to $24.95 in the prior year quarter, and represent
the lowest level achieved during a fourth quarter in more than a
decade. Annual Oil Sands operations cash operating costs per barrel
for 2017 decreased to $23.80, from $26.50 in the prior year, and
were also the lowest in over a decade.
- Refinery utilization of 94% and a continued favourable business
environment helped the Refining and Marketing (R&M) segment
contribute $935 million in funds from operations and $746 million
in operating earnings in the quarter.
- Subsequent to the end of the quarter, Suncor’s Board of
Directors approved a quarterly dividend of $0.36 per common share,
which represents an increase of 12.5% over the prior quarter
dividend, and also approved a further $2 billion share buyback
program, continuing to demonstrate the company’s ability to
generate cash flow and commitment to return cash to
shareholders.
Financial Results
Suncor recorded fourth quarter 2017 operating earnings of
$1.310 billion ($0.79 per common share) compared to
$636 million ($0.38 per common share) in the prior year
quarter. Highlights of the quarter include improved crude oil
pricing and benchmark crack spreads, lower operating and
exploration costs, refinery utilization of 94%, higher sales
volumes at Oil Sands and continued strong upstream production.
Improved benchmark pricing in the quarter was partially offset by
the strengthening of the Canadian dollar.
Funds from operations were $3.016 billion ($1.83 per common
share) compared to $2.365 billion ($1.42 per common share) in
the fourth quarter of 2016 and were influenced by the same factors
impacting operating earnings noted above. Cash flow provided by
operating activities, which includes changes in non‑cash working
capital, was $2.755 billion for the fourth quarter of 2017,
compared to $2.791 billion for the fourth quarter
of 2016.
Net earnings were $1.382 billion ($0.84 per common share)
in the fourth quarter of 2017, compared to $531 million ($0.32
per common share) in the prior year quarter. Net earnings for the
fourth quarter of 2017 included a net $124 million deferred income
tax recovery related to a decrease in the United States (U.S.)
corporate tax rate from 35% to 21%, an unrealized after‑tax foreign
exchange loss of $91 million on the revaluation of
U.S. dollar denominated debt, after-tax insurance proceeds of
$55 million, an after‑tax loss of $18 million for early
payment of debt and a net after-tax gain of $2 million on interest
rate swaps associated with debt issued in the fourth quarter. Net
earnings in the prior year quarter included an unrealized after‑tax
foreign exchange loss of $222 million on the revaluation of
U.S. dollar denominated debt, $71 million of after-tax
derecognition charges and a non‑cash after‑tax mark to market gain
of $188 million on interest rate derivatives.
Operating Results
Suncor’s total upstream production was 736,400 boe/d in the
fourth quarter of 2017, compared to 738,500 boe/d in the prior
year quarter.
Oil Sands operations production was 446,800 barrels per day
(bbls/d) in the fourth quarter of 2017, compared to
433,400 bbls/d in the prior year quarter, with the increase as
a result of improved mining and extraction reliability and record
Firebag production, partially offset by lower production at MacKay
River. Upgrader utilization in the fourth quarters of 2017 and 2016
was strong at 93%, with both periods impacted by planned
maintenance. Oil Sands operations production in the fourth quarter
of 2017 also benefited from bitumen froth received from the Fort
Hills primary extraction assets, which was further upgraded into
synthetic crude oil (SCO).
Oil Sands operations cash operating costs per barrel decreased
to $24.20 in the fourth quarter of 2017, compared to $24.95 in the
prior year quarter, and represent the lowest level achieved during
a fourth quarter in more than a decade. Improved production and a
continued focus on cost discipline in 2017 resulted in Oil Sands
operations achieving the lowest annual cash operating costs per
barrel in more than a decade, decreasing to $23.80 from $26.50 in
2016.
Suncor’s share of Syncrude production was 174,400 bbls/d in
the fourth quarter of 2017, compared to 187,000 bbls/d in the
prior year quarter. Syncrude upgrader reliability was strong in
both quarters, with the fourth quarter of 2017 achieving 94% and
the prior year quarter achieving 102%. Syncrude cash operating
costs per barrel in the fourth quarter of 2017 were $32.80, and
were comparable to $32.55 in the prior year quarter, due to a
decrease in operating costs offsetting lower production.
Production volumes in Exploration and Production (E&P) were
115,200 boe/d in the fourth quarter of 2017, compared to
118,100 boe/d in the prior year quarter, with the decrease
attributed to lower offshore production, partially offset by
increased production from Libya and initial production from the
newly commissioned Hebron asset, which began producing in the
fourth quarter ahead of schedule.
R&M’s refinery crude throughput was 432,400 bbls/d in
the fourth quarter of 2017, compared to 427,300 bbls/d in the
prior year quarter, with strong reliability at the majority of the
company’s refineries partially offset by the impact of a
third-party power outage at the Montreal refinery. Average refinery
utilization was 94% in the fourth quarter of 2017, and was
comparable to 93% in the prior year quarter.
“We achieved greater than 90% reliability at all of our Oil
Sands upgrading assets and a combined refinery utilization of 94%
during the fourth quarter,” said Williams. “Our continued focus on
disciplined cost management, combined with improved overall
reliability, drove annual oil sands cash operating costs
below $25 per barrel for the first time in ten years.”
Strategy Update
The disciplined execution of Suncor’s 2017 capital program was
focused on bringing Suncor’s major growth projects, Fort Hills and
Hebron, to first oil, while continuing to invest in the safety,
reliability and efficiency of the company’s operating assets. The
company is proud to report that both Fort Hills and Hebron have
been safely brought online and are now producing oil, demonstrating
Suncor’s continued ability to deliver on its commitments.
The company spent $1.444 billion on capital expenditures during
the fourth quarter of 2017, bringing annual spending to $5.822
billion, excluding capitalized interest. 2017 annual spending
includes additional expenditures of approximately $150 million
related to the facility incident that occurred at Syncrude in the
first quarter of 2017. The company expects to receive a total of
approximately $140 million in property damage insurance proceeds
related to the incident, for net capital expenditures of $5.682
billion for the year. In the fourth quarter of 2017, the company
received an interim payment of $76 million of its anticipated
property damage insurance proceeds related to the incident, with
the remaining payment anticipated to be received in
2018.
The Fort Hills project began producing paraffinic froth-treated
bitumen from secondary extraction on January 27, 2018, and the
production ramp up to the project’s nameplate capacity of 194,000
bbls/d is progressing on schedule. Prior to secondary extraction
coming online, the company continued to test the front end of the
plant to mitigate the risk associated with the ramp up in 2018,
resulting in bitumen froth production. The bitumen froth was
further processed by Oil Sands operations and included as SCO
production in the period. The total cost of the project to
mechanical completion at the end of 2017 was approximately $17.160
billion, excluding the impact of unfavourable foreign exchange.
Suncor’s estimated capital intensity is approximately $83,000 to
mechanical completion and is comparable to the original per flowing
barrel cost estimate of $84,000.
During the fourth quarter of 2017, the Fort Hills partners
resolved the previously announced commercial dispute and reached an
agreement whereby Suncor and Teck Resources Limited (Teck) each
acquired an additional working interest in the Fort Hills project
from Total E&P Canada Ltd. (Total). Under the terms of the
agreement Suncor’s share of the project increased to 53.06% and
Teck’s share increased to 20.89%, for approximate acquisition costs
of $300 million and $120 million, respectively, and Total’s share
decreased to 26.05%. Working interests in the Fort Hills project
may be further adjusted in accordance with the terms of the
agreement.
In November, Suncor completed the sale of a 49% interest in the
East Tank Farm Development to the Fort McKay and Mikisew Cree First
Nations for proceeds of $503 million. The mutually beneficial
agreement represents the most significant business investment ever
made in Canada by First Nations and demonstrates Suncor’s
commitment to sustainable resource development in partnership with
the community.
During the fourth quarter of 2017, first oil at Hebron was
achieved ahead of schedule and production continues to ramp up
following favourable initial results. At peak, the project is
expected to produce more than 30,000 bbls/d, net to Suncor, ramping
up over the next several years. The post-sanction cost of the
project to first oil was approximately $2.4 billion. Other E&P
activity in the fourth quarter included development drilling at
White Rose, Hebron, Terra Nova and Hibernia, as well as development
work on the West White Rose Project and the Norwegian
Oda project.
“With Fort Hills and Hebron both successfully commissioned and
now producing oil, the safe and steady ramp up of production is
proceeding as planned,” said Williams. “We believe the addition of
these high-quality assets to our portfolio will return long-term
value to shareholders and could not have been achieved without the
hard work and dedication of our employees and business
partners.”
During the fourth quarter of 2017, the company issued US$750
million of 4.00% senior unsecured notes due in 2047. The proceeds
were combined with the $503 million received from the sale of a 49%
interest in the East Tank Farm Development and were used for the
early redemption of US$600 million of 6.05% senior unsecured notes
and $700 million of 5.80% Medium Term Notes, both originally due in
2018. The net decrease in long-term debt was executed early to take
advantage of favourable market conditions in the fourth quarter of
2017, and is expected to reduce future financing costs and provide
ongoing balance sheet flexibility. All debt previously due in 2018
has now been repaid and, apart from US$223 million due in 2019, the
company does not have a significant debt repayment due until
2021.
Under the company’s normal course issuer bid, which commenced in
the second quarter of 2017, the company repurchased
$835 million of its own shares for cancellation in the fourth
quarter of 2017, bringing the full year total shares purchased and
cancelled to $1.413 billion.
Subsequent to the end of the quarter, Suncor’s Board of
Directors approved a quarterly dividend of $0.36 per common share,
which represents an increase of 12.5% over the prior quarter
dividend, and also approved a further $2 billion share buyback
program currently anticipated to commence after the expiry of the
company's current program on May 1, 2018, continuing to demonstrate
the company’s ability to generate cash flow and commitment to
return cash to shareholders.
|
Operating Earnings (Loss) Reconciliation(1) |
|
|
Three monthsended December 31 |
Twelve monthsended December 31 |
($
millions) |
2017 |
2016 |
|
2017 |
2016 |
Net
earnings |
1 382 |
531 |
|
4 458 |
445 |
Unrealized foreign exchange loss (gain) on U.S. dollar denominated
debt |
91 |
222 |
|
(702) |
(524) |
(Gain) loss on interest rate swaps(2) |
(2) |
(188) |
|
20 |
(6) |
Impact of income tax rate adjustment on deferred taxes(3) |
(124) |
- |
|
(124) |
(180) |
Insurance proceeds(4) |
(55) |
- |
|
(55) |
- |
Loss on early payment of long-term debt(5) |
18 |
- |
|
28 |
73 |
Derecognition(6) |
- |
71 |
|
- |
71 |
Gain on significant disposal(7) |
- |
- |
|
(437) |
- |
COS acquisition and integration costs(8) |
- |
- |
|
- |
38 |
Operating
earnings (loss)(1) |
1 310 |
636 |
|
3 188 |
(83) |
|
(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 section of this news
release.
(2) (Gain) loss on forward interest rate swaps associated
with issued debt, due to changes in long‑term interest rates, in
the Corporate segment.
(3) In the fourth quarter of 2017, the company recorded a
net adjustment to its deferred income taxes of $124 million related
to tax reform legislation in the U.S., with the most significant
impact resulting from a decrease in the corporate tax rate from 35%
to 21%. The net deferred tax recovery of $124 million was comprised
of a $140 million recovery in R&M, a $14 million expense in
E&P and a $2 million expense in the company’s Energy Trading
business. The year ended December 31, 2016 was impacted by an
adjustment to the company’s deferred income taxes resulting from a
decrease from 50% to 40% in the United Kingdom tax rate on oil and
gas profits from the North Sea.
(4) During the fourth quarter of 2017, the company received
after-tax property damage insurance proceeds of $55 million ($76
million before tax) related to a facility incident at Syncrude,
which occurred in the first quarter of 2017.
(5) Charges associated with the early repayment of debt,
net of associated realized foreign currency hedge gains, in the
Corporate segment.
(6) During the fourth quarter of 2016, the company recorded
after-tax derecognition charges of $40 million on certain upgrading
and logistics assets in the Oil Sands segment as a result of the
uncertainty of future benefits from these assets, as well as $31
million in the Corporate segment relating to an initial investment
in an undeveloped pipeline and on certain renewable energy
development assets as a result of the uncertainty of future
benefits from these assets.
(7) Gain of $354 million in the R&M segment related to
the sale of the company’s lubricants business, combined with a gain
of $83 million in the Corporate segment related to the sale of the
company’s interest in the Cedar Point wind
facility.
(8) Transaction and related charges associated with the
acquisition of Canadian Oil Sands Limited (COS) in the Corporate
segment.
Corporate Guidance
Suncor has updated its full year business environment outlook
assumption as a result of the recently announced change in the U.S.
corporate tax rate from 35% to 21%. For further details and
advisories regarding Suncor’s 2018 corporate guidance, see
suncor.com/guidance.
Non-GAAP Financial Measures
Operating earnings (loss) is defined in the Non‑GAAP Financial
Measures Advisory section of Suncor’s Report to Shareholders for
the Fourth Quarter of 2017 dated February 7, 2018 (the Quarterly
Report) and reconciled to GAAP measures in the Consolidated
Financial Information and Segment Results and Analysis sections of
the Quarterly Report. Oil Sands operations cash operating costs and
Syncrude cash operating costs are defined in the Non-GAAP Financial
Measures Advisory section of the Quarterly Report and reconciled to
GAAP measures in the Segment Results and Analysis section of the
Quarterly Report. Funds from operations is defined and reconciled
to GAAP measures in the Non‑GAAP Financial Measures Advisory
section of the Quarterly Report. These non-GAAP financial measures
are included because management uses this information to analyze
business performance, leverage and liquidity and it may be useful
to investors on the same basis. These non-GAAP measures do not have
any standardized meaning and therefore are unlikely to be
comparable to similar measures presented by other companies and
should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with GAAP.
Legal Advisory – Forward-Looking
Information
This news release contains certain forward-looking information
and forward-looking statements (collectively referred to herein as
“forward-looking statements”) within the meaning of applicable
Canadian and U.S. securities laws. Forward-looking statements in
this news release include references to: the expectation that the
company will receive a total of approximately $140 million in
property damage insurance proceeds related to the Syncrude facility
incident that occurred during the first quarter of 2017 and that
the remaining payment will be received in 2018; the Fort Hills
project’s nameplate capacity of 194,000 bbls/d; that testing done
to the front end of the plant at Fort Hills will mitigate the risk
associated with the ramp up in 2018; Suncor’s estimated capital
intensity of approximately $83,000 to mechanical completion at the
end of 2017; the possibility that working interests in the Fort
Hills project may be further adjusted in accordance with the terms
of the agreement with the Fort Hills partners; the expectation that
Hebron will produce more than 30,000 bbls/d, net to Suncor, at peak
and that it will ramp up over the next several years; the belief
that the addition of Fort Hills and Hebron to the company’s
portfolio will return long-term value to shareholders; the
expectation that the net decrease in long-term debt in the fourth
quarter of 2017 will reduce future financing costs and provide
ongoing balance sheet flexibility; expectations about the company’s
share buyback programs; and Suncor’s business environment outlook
assumption for the U.S. corporate tax rate. In addition, all other
statements and information about Suncor’s strategy for growth,
expected and future expenditures or investment decisions, commodity
prices, costs, schedules, production volumes, operating and
financial results and the expected impact of future commitments are
forward-looking statements. Some of the forward-looking statements
and information may be identified by words like “expects”,
“anticipates”, “will”, “estimates”, “plans”, “scheduled”,
“intends”, “believes”, “projects”, “indicates”, “could”, “focus”,
“vision”, “goal”, “outlook”, “proposed”, “target”, “objective”,
“continue”, “should”, “may” and similar expressions.
Forward-looking statements are based on Suncor’s current
expectations, estimates, projections and assumptions that were made
by the company in light of its information available at the time
the statement was made and consider Suncor’s experience and its
perception of historical trends, including expectations and
assumptions concerning: the accuracy of reserves and resources
estimates; commodity prices and interest and foreign exchange
rates; the performance of assets and equipment; capital
efficiencies and cost savings; applicable laws and government
policies, including royalty rates and tax laws; future production
rates; the sufficiency of budgeted capital expenditures in carrying
out planned activities; the availability and cost of labour and
services; the satisfaction by third parties of their obligations to
Suncor; and the receipt, in a timely manner, of regulatory and
third-party approvals.
Forward-looking statements are not guarantees of future
performance and involve a number of risks and uncertainties, some
that are similar to other oil and gas companies and some that are
unique to Suncor. Suncor’s actual results may differ materially
from those expressed or implied by its forward-looking statements,
so readers are cautioned not to place undue reliance on them.
The Quarterly Report and Suncor’s Annual Information Form, Form
40-F and Annual Report to Shareholders, each dated March 1, 2017,
and other documents it files from time to time with securities
regulatory authorities describe the risks, uncertainties, material
assumptions and other factors that could influence actual results
and such factors are incorporated herein by reference. Copies of
these documents are available without charge from Suncor at 150 6th
Avenue S.W., Calgary, Alberta T2P 3E3, by calling 1-800-558-9071,
or by email request to invest@suncor.com or by referring to the
company’s profile on SEDAR at sedar.com or EDGAR at sec.gov. Except
as required by applicable securities laws, Suncor disclaims any
intention or obligation to publicly update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise.
Legal Advisory – BOEs
Certain natural gas volumes have been converted to barrels of
oil equivalent (boe) on the basis of one barrel to six thousand
cubic feet. Any figure presented in boe may be misleading,
particularly if used in isolation. A conversion ratio of one bbl of
crude oil or natural gas liquids to six thousand cubic feet of
natural gas is based on an energy equivalency conversion method
primarily applicable at the burner tip and does not represent a
value equivalency at the wellhead. Given that the value ratio based
on the current price of crude oil as compared to natural gas is
significantly different from the energy equivalency of 6:1,
utilizing a conversion on a 6:1 basis may be misleading as an
indication of value.
Suncor Energy is Canada's leading integrated energy company.
Suncor's operations include oil sands development and upgrading,
offshore oil and gas production, petroleum refining, and product
marketing under the Petro-Canada brand. A member of Dow Jones
Sustainability indexes, FTSE4Good and CDP, Suncor is working to
responsibly develop petroleum resources while also growing a
renewable energy portfolio. Suncor is listed on the UN Global
Compact 100 stock index. Suncor's common shares (symbol: SU) are
listed on the Toronto and New York stock exchanges.
For more information about Suncor, visit our web site at
suncor.com, follow us on Twitter @Suncor or together.suncor.com
A full copy of Suncor's fourth quarter 2017 Report to
Shareholders and the financial statements and notes (unaudited) can
be downloaded at suncor.com/financialreporting.
Suncor’s updated Investor Relations presentation is available
online, visit suncor.com/investor-centre.
To listen to the webcast discussing Suncor's fourth quarter
results, visit suncor.com/webcasts.
Representing management will be Steve Williams, president and
chief executive officer, Mark Little, chief operating officer and
Alister Cowan, executive vice president and chief financial
officer.
Media inquiries:403-296-4000media@suncor.com
Investor inquiries:800-558-9071invest@suncor.com
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