Suncor generated record Q2 cash flow, earnings of $1.2 billion

Suncor
“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.  Bloomberg/Getty Images photo by Todd Korol.

“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.  Getty Images photo.

Suncor total upstream production 661,700 boe/d in Q2

Suncor released its second quarter financials on Thursday, which showed 2018 Q2 operating earnings of $1.190 billion, compared to $199 million in the prior year quarter.

The increase was a result of higher crude prices and increased refinery margins, higher In Situ and Syncrude production, and the addition of production from the Fort Hills and Hebron projects.

“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.

According to a press release from the company, the second quarter results were 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 per cent Syncrude ownership increase, and lower capitalized interest.

“We achieved these second quarter results even with the most significant turnaround maintenance schedule in our company’s history,” said Williams.

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 this year was also impacted by the completion of major planned maintenance, as well as a power disruption occurring late in the quarter.  Despite these setbacks, output was higher than the 2017 Q2 due to the facility incident in the previous year quarter and the additional 5 per cent 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.

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.

The net earnings for Q2 2018 included a $218 million unrealized after‑tax foreign exchange loss on the revaluation of U.S. dollar denominated debt.

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 in output 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 per cent in the second quarter of 2018, compared to 83 per cent 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, and were partially offset by higher production volumes and lower natural gas prices.

“Operations at Fort Hills and Hebron continue to ramp up ahead of our expectations,” said Williams.  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 per cent 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.

“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,” said Williams.

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 per cent 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 per cent in the second quarter of 2018 compared to 33 per cent 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 per cent in the second quarter of 2018, compared to 94 per cent 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. These Western Canada supply issues were resolved by the end of the second quarter.

Suncor says its 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 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 per cent 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 per cent 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.

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