“This quarter, we delivered $3.0 billion in funds from
operations, a new second quarter record, and $1.3 billion of
operating earnings due to our team delivering solid operating
performance while taking full advantage of our flexibility to
maximize our cash flow, despite the impact of curtailments,” said
Mark Little, president and chief executive officer. “Strong cash
flow generation and our commitment to capital discipline allowed us
to return value to our shareholders through $658 million in
dividends and $552 million in share repurchases while, at the
same time, strengthening our balance sheet.”
- Funds from operations were $3.005 billion ($1.92 per
common share) in the second quarter of 2019, compared to
$2.862 billion ($1.75 per common share) in the prior year
quarter, an increase of 10% per common share.
- Cash flow provided by operating activities, which includes
changes in non‑cash working capital, was $3.433 billion
($2.19 per common share) in the second quarter of 2019,
compared to $2.446 billion ($1.50 per common share) in the
prior year quarter.
- Net earnings were $2.729 billion ($1.74 per common share)
in the second quarter of 2019, compared to $972 million ($0.60
per common share) in the prior year quarter and included a one‑time
deferred income tax recovery of $1.116 billion ($0.71 per
common share) to reflect the staged reduction of Alberta’s
corporate income tax rate from 12% to 8% over the next
four years.
- Operating earnings were $1.253 billion ($0.80 per common
share), compared to operating earnings of $1.190 billion
($0.73 per common share) in the prior year quarter, an increase of
10% per common share.
- Total Oil Sands production during the second quarter of 2019
increased to 692,200 barrels per day (bbls/d), from
547,600 bbls/d in the prior year quarter. Despite being
limited by production curtailments, Oil Sands achieved a new second
quarter production record, with the increase due to improved Oil
Sands utilization and an increase in Fort Hills production. Fort
Hills production was 89,300 bbls/d, compared to
70,900 bbls/d in the prior year quarter.
- Refining and Marketing (R&M) delivered strong financial
results, despite the impact of planned maintenance in the quarter,
due to improved refining margins and higher crude throughput.
Quarterly funds from operations were $932 million and
operating earnings were $677 million, compared to
$892 million and $671 million, respectively, in the prior
year quarter.
- Exploration and Production (E&P) had 111,700 bbls/d of
production in the second quarter, including improved Hebron
production of 23,600 bbls/d, following the completion of the
sixth production well during the quarter.
- During the second quarter of 2019, the company issued
$750 million of 3.10% senior unsecured medium term notes and
repaid $1.3 billion of short‑term debt and US$140 million
of maturing higher interest long‑term debt, further improving the
company’s liquidity and balance sheet flexibility.
- The company paid $658 million in dividends and repurchased
$552 million of its common shares during
the quarter.
Financial Results
Operating Earnings
Suncor’s second quarter 2019 operating earnings were
$1.253 billion ($0.80 per common share), compared to
$1.190 billion ($0.73 per common share) in the prior year
quarter. The increase in operating earnings was primarily related
to higher overall crude production and refinery crude throughput
due to a less intensive, planned maintenance program at both Oil
Sands and R&M, as compared to the prior year quarter. In
addition, improved reliability at Syncrude and the ramp up of Fort
Hills and Hebron production throughout 2018 further increased crude
output during the second quarter of 2019, which was only partially
offset by a decrease in production associated with the Alberta
government’s mandatory production curtailments. Other positive
factors influencing operating earnings in the second quarter of
2019 were the impact of a weaker Canadian dollar on
U.S. dollar denominated sales and improved refining
margins.
Second quarter 2019 operating earnings were negatively impacted
by lower WTI and Brent benchmark crude prices, an unfavourable
first‑in, first‑out and intercompany inventory change, and an
increase in royalties, operating and transportation expenses,
consistent with the increase in production. In addition,
depreciation, depletion and amortization (DD&A) expenses were
higher than the prior year quarter, due primarily to the staged
commissioning of Fort Hills in 2018 and the increase in
depreciation associated with the transition to IFRS 16 Leases.
Exploration expenses increased due to non‑commercial drilling
results off the east coast of Canada and in the United Kingdom
North Sea.
Net Earnings
Net earnings were $2.729 billion ($1.74 per common share)
in the second quarter of 2019, compared to net earnings of
$972 million ($0.60 per common share) in the prior year
quarter. In addition to the factors impacting operating earnings
discussed above, net earnings for the second quarter of 2019
included a one‑time deferred income tax recovery of
$1.116 billion associated with a staged reduction to the
Alberta corporate income tax rate of 1% each year from 2019 to
2022, an after‑tax gain of $139 million on the sale of the
company’s interest in Canbriam Energy Inc. (Canbriam) and a
$221 million unrealized after‑tax foreign exchange gain on the
revaluation of U.S. dollar denominated debt. Net earnings in
the prior year quarter included an unrealized after‑tax foreign
exchange loss of $218 million on the revaluation of
U.S. dollar denominated debt.
Funds from Operations and Cash Flow Provided By
Operating Activities
Funds from operations were $3.005 billion ($1.92 per common
share) in the second quarter of 2019, compared to
$2.862 billion ($1.75 per common share) in the second quarter
of 2018, and were influenced by the same factors impacting
operating earnings noted above, excluding the impact of DD&A
and exploration expenses.
Cash flow provided by operating activities was
$3.433 billion ($2.19 per common share) for the second quarter
of 2019, compared to $2.446 billion ($1.50 per common share)
for the second quarter of 2018. In addition to the items noted in
funds from operations, cash flow provided by operating activities
was further impacted by a source of cash associated with the
company’s working capital balances in the second quarter of 2019,
as compared to a use of cash in the prior year quarter.
Operating Results
Suncor’s total upstream production was 803,900 barrels of
oil equivalent per day (boe/d) during the second quarter of 2019,
compared to 661,700 boe/d in the prior year quarter, marking a
second quarter production record. The increase was primarily due to
lower planned Oil Sands maintenance, improved reliability at
Syncrude and the ramp up of Fort Hills and Hebron production
throughout 2018, partially offset by the impact of mandatory
production curtailments in the province of Alberta, which began
January 1, 2019.
During the second quarter of 2019, the company was able to
leverage its broad asset base and operational flexibility to
maximize the value of its allotted barrels under the mandatory
curtailment program, focusing on higher value synthetic crude oil
(SCO) production and helping to mitigate the impact of planned
maintenance activities through the transfer of curtailment
allotment among the company’s assets. In addition, solid asset
reliability and availability allowed the company to purchase
24,000 bbls/d of additional curtailment bitumen volumes from
third parties, net of curtailment sales.
“Suncor’s upstream assets produced more than 800,000 bbls/d
of crude oil during the second quarter of 2019, marking a new
second quarter production record, while planned maintenance was
completed at many of our Oil Sands assets in the quarter,” said
Little. “In addition, the team was able to create significant value
by opportunistically shifting production among our assets through
this period of curtailment – another great example of the
benefits that come from having a broad and flexible
asset base.”
Oil Sands operations production was 414,200 bbls/d in the
second quarter of 2019, compared to 358,900 bbls/d in the
prior year quarter. The increase in production was primarily SCO
and resulted from a decrease in planned upgrader maintenance. Oil
Sands operations upgrader reliability improved to 86% in the second
quarter of 2019, compared to 69% in the prior year quarter.
Production of non‑upgraded bitumen from the company’s In Situ
assets was relatively flat quarter‑over‑quarter at
118,700 bbls/d during the second quarter of 2019, compared to
121,000 bbls/d in the prior year quarter, and continued to be
impacted by mandatory production curtailment as the company
favoured the production of higher value SCO barrels, in addition to
the completion of major maintenance at Firebag. In addition,
overall Oil Sands operations production was reduced by the yield
loss associated with upgrading bitumen to SCO.
Oil Sands operations cash operating costs per barrel were $27.80
in the second quarter of 2019, compared to $28.65 in the prior year
quarter, with both periods reflecting the impact of planned
maintenance. The decrease in Oil Sands operations cash operating
costs per barrel was due to the increase in production being
partially offset by higher operating, selling and general costs and
was further impacted by the yield loss associated with the increase
in higher value SCO production. Total Oil Sands operations cash
operating costs were $1.051 billion, compared to
$940 million in the prior year quarter, due primarily to an
increase in commodity consumption costs and higher ore preparation
costs, partially offset by a decrease in natural
gas prices.
Suncor’s share of production from Fort Hills averaged
89,300 bbls/d in the second quarter of 2019 compared to
70,900 bbls/d in the prior year quarter, with the increase in
production attributed to the ramp up of operations throughout 2018.
The increase in production was partially offset by mandatory
production curtailments, which the company limited the effect of
through purchasing 6,500 bbls/d of curtailment credits from
third‑parties. Fort Hills cash operating costs per barrel were
$22.50 in the second quarter of 2019, compared to $28.55 in the
prior year quarter, with the improvement primarily attributed to
the increase in production. Total Fort Hills cash operating costs
were consistent at $183 million, compared to $185 million
in the prior year quarter, despite the increase
in production.
Suncor’s share of Syncrude production was 188,700 bbls/d in
the second quarter of 2019, compared to 117,800 bbls/d in the
prior year quarter. The increase in production was primarily due to
improved reliability at Syncrude due to the prior year quarter
being impacted by extended planned maintenance and a power
disruption. Production increases were partially offset by the
impact of mandatory production curtailments, which Suncor and the
other Syncrude partners helped to mitigate by allocating a portion
of their curtailment allotment to Syncrude, on an opportunistic
basis. In addition, Syncrude purchased other third‑party
curtailment allotments. The total curtailment credits received at
Syncrude resulted in an estimated increase in SCO production of
21,000 bbls/d. Upgrader utilization at Syncrude improved to
93% in the second quarter of 2019, compared to 58% in the prior
year quarter.
Syncrude cash operating costs per barrel were $34.90 in the
second quarter of 2019, a decrease from $56.25 in the prior year
quarter, due primarily to the increase in production. Total
Syncrude cash operating costs were $599 million in the second
quarter of 2019 and were comparable to $603 million in the
prior year quarter.
Production volumes at E&P were 111,700 boe/d in the
second quarter of 2019, compared to 114,100 boe/d in the prior
year quarter. Increased production from Hebron and Oda, which began
production in the first quarter of 2019, nearly offset natural
declines in the United Kingdom, the continued staged return of
White Rose towards full operations and the completion of planned
maintenance at Terra Nova.
Refinery crude throughput was 399,100 bbls/d and refinery
utilization was 86% in the second quarter of 2019, compared to
344,100 bbls/d and a utilization rate of 74% in the prior year
quarter. Both periods were impacted by major planned maintenance,
however, the maintenance completed in the current period had a less
significant impact on production when compared to the second
quarter of 2018, which included the first full turnaround of the
Edmonton refinery, as well as additional turnaround activities at
the company’s other three refineries. Planned maintenance completed
in the second quarter of 2019 included turnaround activities at the
Sarnia and Montreal refineries, as well as major maintenance at the
Edmonton and Commerce City refineries. Refined product sales
increased in the second quarter of 2019 to 508,100 bbls/d,
compared to 500,000 bbls/d in the prior year quarter, with the
increase due to higher refinery crude throughput in the second
quarter of 2019 and the associated increase in refined product
availability. The prior period quarter included a significant draw
of product inventory that was built up in advance of the planned
turnaround of the entire Edmonton refinery in the second quarter
of 2018.
Strategy Update
Suncor’s 2019 capital program is focused on the enhancement and
optimization of the company’s operating asset performance, safety
and reliability, including projects focused on delivering increased
earnings and funds from operations through further cost savings and
structural margin improvements. In addition, the company is
developing step‑out opportunities and asset extensions within its
offshore business in the E&P segment.
Excluding capitalized interest, the company incurred
$1.336 billion in capital expenditures in the second quarter
of 2019, a decrease from $1.737 billion in the prior year
quarter. The decrease was due primarily to lower planned
maintenance and turnaround capital due to the completion of a more
significant planned maintenance program at both Oil Sands and
R&M in the prior year quarter, as well as the decrease in
capital associated with the staged completion and commissioning of
the Fort Hills extraction plants in the first half
of 2018.
Drilling activity at Hebron is ongoing and production continues
to ramp up. Other E&P activity in the second quarter included
development drilling at Hibernia, White Rose, Buzzard and Terra
Nova, and development work on Fenja and the West White
Rose Project.
During the second quarter of 2019, the company sanctioned the
Terra Nova asset life extension. The project is expected to extend
the life of Terra Nova by approximately a decade and is planned for
execution in 2020. The company’s previously issued 2019 capital
guidance included development spending associated with
this project.
In the second quarter of 2019, Suncor sold its 37% interest in
Canbriam for total proceeds and an equivalent gain of
$151 million ($139 million after‑tax), which the company
had acquired in the first quarter of 2018. In addition, Suncor sold
land and several related natural gas wells held in northeast
British Columbia to Canbriam for proceeds of $24 million, with
this transaction closing early in the third quarter
of 2019.
During the second quarter of 2019, the company issued
$750 million of 3.10% senior unsecured medium term notes due
in 2029. Also in the quarter, the company reduced its short‑term
debt balance by $1.281 billion and repaid US$140 million
of maturing long‑term debt, further improving the company’s balance
sheet flexibility.
In the second quarter of 2019, the company repurchased
$552 million of its own shares for cancellation under the
company’s normal course issuer bid, and returned $658 million
of cash to shareholders through dividends.
“Through our integrated model and focus on operational
excellence, capital discipline and sustainability, we are well
positioned for the future and continue to deliver increased returns
to our shareholders,” said Little. “We will continue to optimize
and enhance our business through leveraging the talent of our
people, a continued focus on innovation and the integration of
advanced digital technology. To accelerate these efforts, we have
assembled some of our most senior leaders into a dedicated project
team to guide Suncor through the next phase of the company’s
evolution.”
Operating Earnings Reconciliation(1)
|
Three months ended June 30 |
Six months ended June 30 |
|
($ millions) |
2019 |
|
2018 |
2019 |
|
2018 |
|
|
Net earnings |
2 729 |
|
972 |
4 199 |
|
1 761 |
|
|
Unrealized foreign exchange (gain) loss on U.S. dollar
denominated debt |
(221 |
) |
218 |
(482 |
) |
547 |
|
|
Impact of income tax rate adjustment on deferred taxes(2) |
(1 116 |
) |
— |
(1 116 |
) |
— |
|
|
Gain on significant disposal(3) |
(139 |
) |
— |
(139 |
) |
(133 |
) |
|
Operating earnings(1) |
1 253 |
|
1 190 |
2 462 |
|
2 175 |
|
|
- 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.
- In the second quarter of 2019, the company recorded a
$1.116 billion deferred income tax recovery associated with
the Government of Alberta’s substantive enactment of legislation
for the staged reduction of the corporate income tax rate from 12%
to 8% over the next four years.
- In the second quarter of 2019, Suncor sold its 37% interest in
Canbriam for total proceeds and an equivalent gain of
$151 million ($139 million after tax), which had
previously been written down to nil in the fourth quarter of 2018
following the company’s assessment of forward natural gas prices
and the impact on estimated future cash flows. The equity interest
in Canbriam was acquired during the first quarter of 2018 in
exchange for the company’s mineral landholdings in northeast
British Columbia, at which time a gain of $133 million
after‑tax was recorded on the transaction.
Corporate Guidance
Suncor has revised its full year outlook range for capital
expenditures to $4.9 – $5.4 billion, down from
$4.9 – $5.6 billion to reflect the company’s continued
focus on capital discipline, and Syncrude cash operating costs per
barrel have been increased to $36.50 – $39.50 from
$33.50 – $36.50 due to additional costs associated with
driving sustained reliability improvements at Syncrude. In
addition, the company has updated its key refining benchmark crack
spread to New York Harbor 2‑1‑1 crack, from New York Harbor
3‑2‑1 crack, which better reflects the approximate composition of
Suncor’s overall refined product mix. No other changes have
been made to Suncor’s guidance at this time. For further details
and advisories regarding Suncor’s 2019 corporate 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 24, 2019 (the MD&A) and reconciled to the most
directly comparable GAAP measure above and in the Consolidated
Financial Information and Segment Results and Analysis sections 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 the most directly comparable GAAP measures in the
Segment Results and Analysis section of the MD&A. Funds from
operations is defined and reconciled to the most directly
comparable GAAP measure 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: Suncor’s 2019 capital
program will focus on the enhancement and optimization of the
company’s operating asset performance, safety and reliability,
including projects focused on delivering increased earnings and
funds from operations through further cost savings and structural
margin improvements and that the company is developing step-out
opportunities and asset extensions; statements about the Terra Nova
asset life extension, including the expectation that the project
will extend the life of Terra Nova by approximately a decade and
the timing of the project’s execution; the belief that Suncor’s
integrated model and focus on operational excellence, capital
discipline and sustainability position Suncor well for the future
and enable Suncor to continue to deliver increased returns to its
shareholders; the belief that Suncor will continue to optimize and
enhance its business through leveraging the talent of its people, a
continued focus on innovation and the integration of advanced
digital technology; expectations about Suncor’s dedicated project
team, including that it will guide Suncor through the next phase of
the company’s evolution; and Suncor's full year outlook range on
capital expenditures and Syncrude cash operating costs per barrel
and business environment outlook assumptions for New York Harbor
2-1-1 crack. 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
development and 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.
Suncor’s Annual Information Form, Form 40-F and Annual Report to
Shareholders, each dated February 28, 2019, the MD&A, and other
documents Suncor 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 website at
suncor.com, follow us on Twitter @Suncor or together.suncor.com
A full copy of Suncor's second quarter 2019 Report to
Shareholders and the financial statements and notes (unaudited) can
be downloaded at
suncor.com/investor-centre/financial-reports.
Suncor’s updated Investor Relations presentation and the R&M
Supplemental Information presentation are 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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