SUNCOR ENERGY LOSS $376 MLN
"Suncor has delivered another strong quarter, with operating cash flow of $1.9 billion," said Steve Williams, president and chief executive officer. "The strength of our downstream business and the reliability of our Oil Sands operations continue to serve our shareholders well in the current challenging crude oil pricing environment."
- Cash flow from operations of $1.882 billion ($1.30 per common share) driven by a favourable downstream pricing environment and strong refinery utilization in the Refining and Marketing segment, reinforcing the resilience of the company's integrated model.
- Operating earnings of $410 million ($0.28 per common share) and a net loss of $376 million ($0.26 per common share).
- Oil Sands operations cash operating costs per barrel decreased to $27.00 for the third quarter of 2015, which was the lowest achieved since 2007. This decrease was driven by strong production of 430,300 barrels per day (bbls/d) despite planned maintenance at Upgrader 2, lower natural gas prices and the company's cost reduction initiatives.
- Suncor remains committed to profitable growth in the oil sands. This quarter, the company announced an agreement to acquire an additional 10% of the Fort Hills mining project and, subsequent to the quarter end, commenced an offer to acquire all of the outstanding shares of Canadian Oil Sands Limited (COS) for consideration of 0.25 of a Suncor share per COS share. The transaction was valued at $6.6 billion at the time of announcement.
Suncor recorded third quarter 2015 operating earnings of $410 million ($0.28 per common share) and cash flow from operations of $1.882 billion ($1.30 per common share), compared to $1.306 billion ($0.89 per common share) and $2.280 billion ($1.56 per common share), respectively, in the prior year quarter, reflecting the lower upstream crude oil price environment. Highlights of the third quarter included increased Exploration and Production (E&P) and Oil Sands operations production, a favourable downstream pricing environment and lower operating costs. For the twelve months ended September 30, 2015, free cash flow was $467 million, compared to $3.082 billion for the twelve months ended September 30, 2014.
A net loss of $376 million ($0.26 per common share) was recorded in the third quarter of 2015, compared with net earnings of $919 million ($0.63 per common share) in the prior year quarter. The net loss for the third quarter of 2015 included an unrealized after-tax foreign exchange loss of $786 million on the revaluation of U.S. dollar denominated debt. Net earnings in the prior year quarter included an after-tax gain of $61 million on the disposal of the Wilson Creek assets in the E&P segment, offset by a $54 million income tax and interest charge related to a prior period in the Oil Sands segment, and the impact of an unrealized after-tax foreign exchange loss of $394 million.
Suncor's total upstream production was 566,100 barrels of oil equivalent per day (boe/d) in the third quarter of 2015, compared with 519,300 boe/d in the prior year quarter, primarily due to increased production in the U.K. and strong reliability in Oil Sands operations.
Oil Sands operations production was 430,300 bbls/d in the third quarter of 2015, compared to 411,700 bbls/d in the prior year quarter, primarily due to higher In Situ production and reliable operations across all assets. Both quarters included major planned maintenance.
Cash operating costs per barrel for Oil Sands operations decreased in the third quarter of 2015 to $27.00/bbl, compared to $31.10/bbl in the prior year quarter, due to lower operating expenses as a result of lower natural gas prices and cost reduction initiatives, combined with increased production.
"Our focus on operational discipline continues to pay off," said Williams. "We're delivering on the reliability targets and cost reduction measures we established, leading to the lowest cash operating cost per barrel for Oil Sands operations in eight years - the results clearly demonstrate the impact this discipline has on Suncor's performance."
Suncor's share of Syncrude production was 28,100 bbls/d in the third quarter of 2015, compared to 29,400 bbls/d in the prior year quarter. The decrease was primarily due to a fire that occurred at Syncrude's Mildred Lake upgrader during the third quarter of 2015. Subsequent to the quarter end, production was impacted by further operational issues that delayed a return to normal production.
Production volumes in E&P increased to 107,700 boe/d in the third quarter of 2015, compared to 78,200 boe/d in the prior year quarter, primarily due to increased production in the U.K., partially offset by natural declines at Hibernia and White Rose. Production in Libya continues to be impacted by political unrest, with the timing of a return to normal operations remaining uncertain.
During the third quarter of 2015, Refining and Marketing commenced planned maintenance at the Montreal refinery, which was completed subsequent to the quarter end. Average refinery utilization improved to 96% in the third quarter, compared to 94% in the prior year quarter, which included planned maintenance events at the Montreal, Sarnia and Edmonton refineries.
Suncor continues to deliver on its commitment to invest in long-term profitable growth in its core asset areas. In addition to the offer to COS shareholders, the company has also reached an agreement to acquire an additional 10% working interest in the Fort Hills oil sands project from Total E&P Canada Ltd. for $310 million, subject to closing adjustments. The transaction is expected to close by the end of 2015 and, upon closing, Suncor's share in the project will increase to 50.8%.
"We believe that we can drive real improvements in Syncrude's performance with a larger ownership interest," said Williams. "We have been disappointed with Syncrude's performance for some time now. The asset ran at only 67% of capacity during the third quarter, and about 70% so far this year, in stark contrast to Suncor's upgrading operations that have been consistently achieving above 90% reliability this year."
The company also completed an asset swap and lease with TransAlta Corporation where Suncor assumed operating control of the Poplar Creek cogeneration facilities, which provide steam and power to the company's Oil Sands operations, in exchange for Suncor's Kent Breeze and its share of the Wintering Hills wind power facilities. Bringing the Poplar Creek assets in-house is expected to improve Suncor's overall Oil Sands operations reliability and profitability.
The National Energy Board approved the start-up of Enbridge's Line 9 reversal in the third quarter of 2015, which is anticipated in the fourth quarter of 2015. The reversal is expected to provide Suncor with the flexibility to supply the Montreal refinery with a full slate of inland-priced crude from Western Canada.
Oil Sands Operations
Suncor continued to focus on well pad construction to sustain existing production at Firebag and MacKay River, and on multiple projects that enhance safety, reliability and environmental performance. Capital spending in the third quarter included major maintenance on a vacuum unit and one Upgrader 2 coker set that was completed in the fourth quarter of 2015.
Oil Sands Ventures
The Fort Hills project remains on schedule with detailed engineering 94% complete and construction 43% complete at the end of the third quarter. Spending during the quarter included engineering, procurement, module fabrication and site construction. The project is expected to deliver approximately 73,000 bbls/d of bitumen to Suncor, increasing to 91,000 bbls/d subject to closing of an additional 10% working interest in Fort Hills. First oil is expected in the fourth quarter of 2017, and 90% of capacity planned to be reached within twelve months thereafter.
Exploration and Production
Construction of the Hebron project continued in the third quarter of 2015, with first oil expected in late 2017. Development drilling at Golden Eagle continued through the third quarter.
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REUTERS - Brent crude futures LCOc1 were down 72 cents at $61.49 per barrel at 1020 GMT, having fallen by 1.5 percent on Tuesday, its largest one-day drop in a month. U.S. West Texas Intermediate (WTI) crude CLc1 was at $55.12 per barrel, down 58 cents.
BLOOMBERG - Prices dropped during the session as the International Energy Agency said the recent recovery in oil prices, coupled with milder-than-normal winter weather, is slowing demand growth. The worsening outlook for consumption dampened some of the enthusiasm that OPEC and its allies will extend supply curbs.
Global energy needs rise more slowly than in the past but still expand by 30% between today and 2040. This is the equivalent of adding another China and India to today’s global demand.
Product exports have grown significantly over the past several years and are expected to continue to grow as Russian refineries add capacity to produce more high-quality products.