Unless otherwise noted, all financial figures
are unaudited, presented in Canadian dollars (Cdn$), and have been
prepared in accordance with International Financial Reporting
Standards, specifically International Accounting Standard 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,
Fort Hills cash operating costs, In Situ cash operating costs,
refining margin, 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 Fort Hills' and
Syncrude's operations.
“Suncor generated the strongest second quarter cash flow on record,
with funds from operations of $2.9 billion and operating
earnings of $1.2 billion,” said Steve Williams, president and
chief executive officer. “We achieved these second quarter results
even with the most significant turnaround maintenance schedule in
our company’s history.”
- Funds from operations of $2.862 billion ($1.75 per common
share). Cash flow provided by operating activities, which includes
changes in non‑cash working capital, was $2.446 billion ($1.50
per common share).
- Operating earnings of $1.190 billion ($0.73 per common
share) and net earnings of $972 million ($0.60 per
common share).
- Fort Hills production averaged 70,900 barrels per day
(bbls/d) (131,000 bbls/d, gross) in the second quarter of
2018, with the third and final extraction train coming online ahead
of schedule. Fort Hills cash operating costs per barrel averaged
$28.55.
- Hebron production averaged 13,500 bbls/d and continues to
ramp up ahead of expectations.
- In Situ cash operating costs averaged $7.90 per barrel (bbl),
the fourth consecutive quarter below $10.00/bbl.
- Total upstream quarterly production was 661,700 barrels of
oil equivalent per day (boe/d) and was impacted by major planned
maintenance at Oil Sands operations and Syncrude, as well as the
unplanned outage at Syncrude in late June.
- Refining and Marketing (R&M) delivered funds from
operations of $884 million with an average refining margin of
$27.40/bbl, despite significant planned maintenance completed in
the quarter.
- The company continued to return value to shareholders,
distributing $587 million in dividends and repurchasing $849
million of shares since the end of the first quarter of 2018,
including committed repurchases subsequent to the end of the second
quarter of 2018.
- Subsequent to the end of the quarter, Suncor’s Board of
Directors approved an increase to the share repurchase program from
$2.15 billion to $3 billion, demonstrating confidence in
the company’s ability to generate cash flow and commitment to
return cash to shareholders.
Financial Results
Suncor recorded second quarter 2018 operating earnings of
$1.190 billion ($0.73 per common share), compared to
$199 million ($0.12 per common share) in the prior year
quarter. The increase was a result of improved crude oil pricing
and increased refinery margins, higher In Situ and Syncrude
production, and the addition of production from the Fort Hills and
Hebron projects. The increase was partially offset by the impact of
major planned maintenance at Oil Sands and the company’s
refineries, the addition of operating costs for Fort Hills, Hebron
and the 5% Syncrude ownership increase, and lower capitalized
interest. Oil Sands operations production increased from the prior
year quarter; however, sweet synthetic crude oil (SCO) production
was impacted by the first major planned turnaround of Upgrader
1 since moving to a five‑year cycle. Syncrude production in
the second quarter of 2018 was also impacted by the completion of
major planned maintenance, as well as a power disruption occurring
late in the quarter, but was higher than the second quarter of 2017
due to the facility incident in the previous year quarter and the
additional 5% working interest acquired in the first quarter
of 2018.
Funds from operations were $2.862 billion ($1.75 per common
share) in the second quarter of 2018, compared to
$1.627 billion ($0.98 per common share) in the second quarter
of 2017, and were influenced primarily by the same factors
impacting operating earnings noted above, in addition to an
increase in non‑cash share‑based compensation. Cash flow provided
by operating activities, which includes changes in non‑cash working
capital, was $2.446 billion for the second quarter of 2018,
compared to $1.671 billion for the second quarter
of 2017.
Net earnings were $972 million ($0.60 per common share) in
the second quarter of 2018, compared to $435 million ($0.26
per common share) in the prior year quarter. Net earnings for the
second quarter of 2018 included a $218 million unrealized
after‑tax foreign exchange loss on the revaluation of
U.S. dollar denominated debt. Net earnings in the prior year
quarter included a $278 million unrealized after‑tax foreign
exchange gain on the revaluation of U.S. dollar denominated
debt, a non‑cash after‑tax loss of $32 million on interest
rate swaps and foreign currency derivatives and an after‑tax charge
of $10 million for early debt repayment, net of associated
foreign currency hedges.
Operating Results
Suncor’s total upstream production was 661,700 boe/d in the
second quarter of 2018, compared to 539,100 boe/d in the prior
year quarter.
Oil Sands operations production was 358,900 bbls/d in the
second quarter of 2018, compared to 352,600 bbls/d in the
prior year quarter. The increase was a result of higher production
volumes from In Situ, with the prior year quarter impacted by a
turnaround at Firebag, partially offset by lower SCO production at
Oil Sands Base due to the completion of the first major planned
turnaround of Upgrader 1 since increasing the interval between
turnarounds to five years. As a result, upgrader utilization
declined to 69% in the second quarter of 2018, compared to 83% in
the prior year period, which was also impacted by planned
maintenance.
Oil Sands operations cash operating costs per barrel increased
to $28.65 in the second quarter of 2018, from $27.80 in the prior
year quarter, primarily as a result of higher maintenance costs
associated with turnaround activity, partially offset by higher
production volumes and lower natural gas prices.
The Fort Hills project continues to ramp up ahead of schedule,
with Suncor’s share of production averaging 70,900 bbls/d for
the second quarter of 2018. The third and final extraction train at
Fort Hills became operational during the second quarter of 2018 and
the plant was successfully tested in excess of 90% of full design
capacity during a weeklong reliability test. Fort Hills cash
operating costs per barrel were $28.55 in the second quarter
of 2018.
“Operations at Fort Hills and Hebron continue to ramp up ahead
of our expectations,” said Williams. “Both projects were
constructed during a low oil price environment, have come online as
prices have strengthened and are already delivering positive
quarterly cash flow.”
Suncor’s share of Syncrude production was 117,800 bbls/d in
the second quarter of 2018, compared to 61,000 bbls/d in the
prior year quarter. The increase in production is largely
attributable to the prior year quarter being significantly impacted
by a facility incident, combined with the additional 5% working
interest in Syncrude acquired in the first quarter of 2018,
partially offset by a power disruption that occurred late in the
second quarter. Upgrader reliability at Syncrude was 58% in the
second quarter of 2018 compared to 33% in the prior year quarter,
with both periods being impacted by planned major maintenance.
Syncrude has developed a return to service plan following the power
disruption and partial production from the first coker returned in
the second half of July, with a ramp up to full rates anticipated
in September.
“We want to reiterate our belief in Syncrude’s long‑term
potential and ability to achieve sustained reliability
improvements, despite our disappointment with recent operational
performance,” said Williams. “From experience, we know that
long‑term reliability is a journey and we are working with the
owners to advance strategic initiatives in order to achieve our
reliability and cost goals.”
Syncrude cash operating costs per barrel were $56.25 in the
second quarter of 2018, a decrease from $97.80 in the prior year
quarter, primarily due to increased production and lower natural
gas prices, partially offset by higher maintenance costs.
Production volumes in Exploration and Production (E&P) were
114,100 boe/d in the second quarter of 2018, compared to
125,500 boe/d in the prior year quarter. The decrease in
production was due to natural declines and planned maintenance at
White Rose, partially offset by the addition of production from
Hebron, which averaged 13,500 bbls/d in the quarter, and
development drilling at existing East Coast assets. The third
production well at Hebron came online ahead of schedule at the
start of the second quarter of 2018.
Refinery crude throughput was 344,100 bbls/d in the second
quarter of 2018, compared to 435,500 bbls/d in the prior year
quarter, and was impacted by the completion of one of the most
significant periods of major maintenance the company has undertaken
at its refineries, including the entire Edmonton refinery
undergoing the first full turnaround in its history. As a result,
average refinery utilization declined to 74% in the second quarter
of 2018, compared to 94% in the prior year quarter. R&M results
in the current period benefited from the sale of refined product
inventories built in advance of the turnarounds, partially offset
by the impact of a delay in turnaround completion at the Edmonton
refinery, which contributed to product shortages in Western Canada.
Supply issues in Western Canada were resolved by the end of the
second quarter.
Strategy Update
Suncor’s 2018 capital program is focused on improving the
safety, long‑term reliability and efficiency of the company’s
operating assets, including execution of major turnarounds, in
addition to the efficient and effective ramp up at both of Suncor’s
major growth projects, Fort Hills and Hebron.
The company spent $1.737 billion on capital expenditures
during the second quarter of 2018, which increased from
$1.659 billion in the prior year quarter due to major planned
maintenance completed across the company, with several assets
undergoing turnarounds.
The ramp up at Fort Hills exceeded expectations during the
quarter, and Suncor was able to test the plant in excess of 90% of
design capacity of 194,000 bbls/d (105,000 bbls/d net to
Suncor) during a weeklong reliability test. Following the advanced
commissioning of the third and final secondary extraction train,
the company will focus on optimizing mining capacity to reliably
sustain production in excess of 90% of plant capacity by the fourth
quarter of 2018. As a result, guidance for Suncor’s share of Fort
Hills production has increased to 60,000 – 70,000 bbls/d
for the year.
The Hebron project also continues to ramp up ahead of
expectations, with increased volumes from the third production well
coming on early in the second quarter of 2018. Other E&P
activity in the second quarter included development drilling at
White Rose, Terra Nova and Hibernia, and development work on the
West White Rose Project and the Norwegian Oda projects.
“Bringing our major growth projects up to their full design
capacity on a sustained basis remains a priority of the company,”
said Williams. “As these major growth projects transition to
continued operations, we remain focused on returning cash to
shareholders and prioritizing initiatives at our existing assets
that further improve cash flow.”
During the second quarter of 2018, the company closed its
previously announced transaction to acquire a 17.5% interest in the
Fenja development project offshore Norway, with an effective date
of January 1, 2018, for US$55 million or approximately
$70 million. In addition, the company acquired a further 10%
interest in the Rosebank project in the second quarter
of 2018.
During the second quarter of 2018, under Suncor’s normal course
issuer bid, Suncor repurchased and cancelled $609 million of
its own shares and continued to return cash to shareholders through
dividends of $587 million. The company repurchased a further
$240 million of shares for cancellation subsequent to the end of
the quarter, for total repurchases of $849 million since the end of
the first quarter of 2018.
Subsequent to the end of the quarter, Suncor’s Board of
Directors approved an increase in the company’s share repurchase
program from $2.15 billion to $3 billion, demonstrating
confidence in the company’s ability to generate cash flow and
commitment to return cash to shareholders.
Operating Earnings Reconciliation(1)
|
Three months ended June 30 |
Six months ended June 30 |
|
($ millions) |
2018 |
2017 |
|
2018 |
|
2017 |
|
|
Net
earnings |
972 |
435 |
|
1 761 |
|
1 787 |
|
|
Unrealized foreign exchange loss (gain) on U.S. dollar
denominated debt |
218 |
(278 |
) |
547 |
|
(381 |
) |
|
Non‑cash mark to market loss on interest rate swaps and foreign
currency derivatives(2) |
— |
32 |
|
— |
|
32 |
|
|
Loss on early payment of long‑term debt(3) |
— |
10 |
|
— |
|
10 |
|
|
Gain on disposal(4) |
— |
— |
|
(133 |
) |
(437 |
) |
|
Operating
Earnings(1) |
1 190 |
199 |
|
2 175 |
|
1 011 |
|
|
(1) Operating earnings 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) Non‑cash mark to market loss on interest rate swaps
and foreign currency derivatives resulting from changes in
long‑term interest rates and foreign exchange rates in the
Corporate segment.
(3) Charges associated with the early repayment of debt,
net of associated realized foreign currency hedge gains, in the
Corporate segment.
(4) The first quarter of 2018 included a non‑cash
after‑tax gain of $133 million in the E&P segment related
to the asset exchange with Canbriam Energy Inc. for the
company’s mineral landholdings in northeast British Columbia. The
first quarter of 2017 included a $345 million after‑tax gain
in the R&M segment related to the sale of the company’s
lubricants business, combined with an after‑tax gain of
$83 million in the Corporate segment related to the sale of
the company’s interest in the Cedar Point wind facility.
Corporate Guidance
Suncor has updated its production, capital and other information
in its 2018 corporate guidance, previously issued on
May 1, 2018.
The total production outlook range has been updated from
740,000 – 780,000 boe/d to 740,000 –
750,000 boe/d to reflect the impact of production performance
for the first six months of 2018, as well as the power disruption
at Syncrude at the end of the second quarter of 2018, partially
offset by the accelerated ramp up of Fort Hills. Oil Sands
operations production has been updated from 425,000 –
455,000 bbls/d to 415,000 – 430,000 bbls/d, Fort
Hills production has been increased from 50,000 –
60,000 bbls/d to 60,000 – 70,000 bbls/d, Syncrude
production has been updated from 150,000 – 165,000 bbls/d
to 140,000 – 145,000 bbls/d and E&P production
remains the same at 105,000 to 115,000 bbls/d. As a result of
the decrease to the Oil Sands operations production range, the SCO
sales range has also decreased from 290,000 –
310,000 bbls/d to 280,000 – 290,000 bbls/d.
The updated full year outlook range for capital expenditures has
been increased to $5.2 – $5.5 billion from $4.5 –
$5.0 billion, to reflect the increased ownership at both
Syncrude and Fort Hills, the capital requirements for the Fenja
acquisition, which closed in the second quarter of 2018,
accelerated investment in future growth projects and an increase in
turnaround expenditures at Oil Sands operations, Syncrude and
R&M. As a result, Upstream capital has increased from
$3.65 billion – $4.05 billion to $4.3 –
$4.5 billion and the Downstream capital range has increased
from $800 – $850 million to $850 –
$900 million.
Oil Sands operations Crown royalties have been updated from
1% – 3% to 3% – 5%, Fort Hills Crown royalties have been
updated from 1% – 3% to 3% – 5% and Syncrude Crown
royalties have been updated to 3% – 6% from 6% – 9%, with
the increase in royalty rates attributed to higher forecast
benchmark prices.
The following full year outlook assumptions have also been
adjusted: Brent Sullom Voe from US$67.00/bbl to US$72.00/bbl, WTI
at Cushing from US$63.00/bbl to US$66.00/bbl, WCS at Hardisty from
US$41.00/bbl to US$44.00/bbl and the Cdn$/US$ exchange rate from
0.78 to 0.77. As a result of the increase in key benchmark pricing
forecasts, the full year current income tax expense range has
increased to $1.7 – $2.0 billion from $1.05 –
$1.35 billion.
Cash operating costs per barrel have been updated for changes in
the production outlook, and the impact of increased maintenance
costs at Syncrude, resulting in a decrease in annual Fort Hills
cash operating costs to $28.50 – $32.50/bbl from $35.00 –
$40.00/bbl, and Syncrude cash operating costs increasing to
$44.50 – $47.50/bbl from $32.50 – $35.50/bbl.
For further details and advisories regarding Suncor’s 2018
annual guidance, see suncor.com/guidance.
Non-GAAP Financial Measures
Operating earnings is defined in the Non‑GAAP Financial Measures
Advisory section of Suncor’s Management's Discussion and Analysis
dated July 25, 2018 (the MD&A) and reconciled to the GAAP
measure above and in the Consolidated Financial Information section
of the MD&A. Oil Sands operations cash operating costs, Fort
Hills cash operating costs and Syncrude cash operating costs are
defined in the Non-GAAP Financial Measures Advisory section of the
MD&A and reconciled to GAAP measures in the Segment Results and
Analysis section of the MD&A. Funds from operations, refining
margin and In Situ cash operating costs are defined and reconciled
to GAAP measures in the Non‑GAAP Financial Measures Advisory
section of the MD&A. 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: statements about Suncor’s
share repurchase program, Suncor’s confidence in the company’s
ability to generate cash flow and its commitment to return cash to
shareholders; Syncrude’s return to service plan and the expectation
that Syncrude production will ramp up to full rates in September;
Suncor’s belief in Syncrude’s long-term potential and ability to
achieve sustained reliability improvements, and that Suncor is
working with the Syncrude owners to advance strategic initiatives
in order to achieve reliability and cost goals; the expectation
that Suncor’s 2018 capital program will focus on improving the
safety, long-term reliability and efficiency of the company’s
operating assets, including execution of major turnarounds, in
addition to the efficient and effective ramp up at both of Suncor’s
major growth projects, Fort Hills and Hebron, and Suncor’s priority
relating to bringing the company’s major growth projects up to
their full design capacity on a sustained basis; the company’s
focus on optimizing mining capacity at Fort Hills with the
expectation of reliably sustaining production in excess of 90% of
plant capacity by the fourth quarter of 2018; the company’s plan to
remain focused on returning cash to shareholders and prioritizing
initiatives at existing assets that further improve cash flow; and
Suncor’s outlook for full year total production, and Oil Sands
operations, Fort Hills, Syncrude and E&P production, SCO sales,
total capital expenditures and Upstream and Downstream capital
expenditures, Oil Sands operations, Fort Hills and Syncrude Crown
royalties, current income tax expense, Fort Hills cash operating
costs and Syncrude cash operating costs, and business environment
outlook assumptions for Brent Sullom Voe, WTI at Cushing, WCS at
Hardisty and Cdn$/US$ exchange 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; future production rates; the sufficiency of budgeted
capital expenditures in carrying out planned activities; the
availability and cost of labour, services and infrastructure; the
satisfaction by third parties of their obligations to Suncor; the
execution of projects; 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 MD&A and Suncor’s Annual Information Form, Form 40-F and
Annual Report to Shareholders, each dated March 1, 2018, 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 second quarter 2018 Report to
Shareholders and the financial statements and notes (unaudited) can
be downloaded at
http://www.suncor.com/investor-centre/financial-reports/annual-disclosure.
Suncor’s updated Investor Relations presentation is available
online, visit suncor.com/investor-centre.
To listen to the webcast discussing Suncor's second quarter
results, visit suncor.com/webcasts.
Media inquiries:403-296-4000media@suncor.com
Investor inquiries:800-558-9071invest@suncor.com
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