SUNCOR NET LOSS $2 BLN
"In 2015 we generated cash flow that exceeded our annual sustaining capital and dividend commitments," said Steve Williams, president and chief executive officer. "Our integrated business model, our ability to reduce costs, and our relentless focus on operational discipline made this possible. As a result, we are well positioned to weather the current low crude oil price environment."
Highlights of the fourth quarter of 2015 include:
- Cash flow from operations of $1.294 billion ($0.90 per common share), and an operating loss of $26 million ($0.02 per common share), driven by lower crude oil prices and a Refining and Marketing first-in, first-out (FIFO) loss of $77 million, partially offset by increased refining margins.
- Net loss of $2.007 billion ($1.38 per common share), due to non-cash asset writedowns, which were a result of the depressed commodity cycle, and a foreign exchange loss on U.S. dollar denominated debt.
- Oil Sands operations cash operating costs per barrel decreased to $28.00 for the fourth quarter of 2015, which was driven by strong production of 439,700 barrels per day (bbls/d), continued cost reduction initiatives, reduced unplanned maintenance activities and lower natural gas prices.
- Effective January 1, 2016, nameplate capacity of Firebag increased from 180,000 bbls/d to 203,000 bbls/d, as a result of completing cost-effective debottleneck activities.
- Subsequent to the end of the fourth quarter, Suncor and Canadian Oil Sands Limited (COS) reached an agreement for COS and its Board of Directors to support Suncor's offer to purchase all of the shares of COS for consideration of 0.28 of a Suncor share for each COS share. The transaction was valued at $6.6 billion at the time of the agreement.
Suncor recorded a fourth quarter 2015 operating loss of $26 million ($0.02 per common share), including a FIFO loss of $77 million, and cash flow from operations of $1.294 billion ($0.90 per common share) reflecting the lower crude oil price environment, compared to operating earnings of $386 million ($0.27 per common share), including a FIFO loss of $372 million, and cash flow from operations of $1.492 billion ($1.03 per common share), in the prior year quarter. Highlights in the fourth quarter of 2015 included a favourable downstream pricing environment, increased production from Oil Sands operations, and lower operating costs.
For the twelve months ended December 31, 2015, free cash flow was $139 million, compared to $2.097 billion for the twelve months ended December 31, 2014.
A net loss of $2.007 billion ($1.38 per common share) was recorded in the fourth quarter of 2015, compared with net earnings of $84 million ($0.06 per common share) in the prior year quarter. Net loss for the fourth quarter of 2015 was impacted by the same factors influencing the operating loss and included $1.599 billion of non-cash impairment charges and an unrealized after-tax foreign exchange loss of $382 million on the revaluation of U.S. dollar denominated debt. Net earnings in the prior year quarter included the impact of an unrealized after-tax foreign exchange loss of $302 million.
Suncor's total upstream production increased to 582,900 barrels of oil equivalent per day (boe/d) in the fourth quarter of 2015, compared with 557,600 boe/d in the prior year quarter, primarily due to strong reliability in Oil Sands operations.
Oil Sands operations production increased to 439,700 bbls/d in the fourth quarter of 2015, compared to 384,200 bbls/d in the prior year quarter, primarily due to record In Situ production and reliable operations across all assets following the completion of planned maintenance early in the quarter.
Cash operating costs per barrel for Oil Sands operations decreased in the fourth quarter of 2015 to $28.00/bbl, compared to $34.45/bbl in the prior year quarter, due to higher production combined with lower operating expenses as a result of cost reduction initiatives, lower unplanned maintenance and lower natural gas prices.
"We have surpassed the reliability and cost reduction targets we established in early 2015," said Williams. "Operating costs across the organization are down almost $1 billion from last year, while Oil Sands upgrading reliability exceeded 90%, more than a year ahead of our original plan."
Suncor's share of Syncrude production was 30,900 bbls/d in the fourth quarter of 2015, compared to 35,100 bbls/d in the prior year quarter. The decrease was primarily due to unplanned maintenance activities during the fourth quarter of 2015.
Production volumes in Exploration and Production (E&P) decreased to 112,300 boe/d in the fourth quarter of 2015, compared to 138,300 boe/d in the prior year quarter, primarily due to shut-in production in Libya, natural declines at Terra Nova and temporary export pipeline constraints that impacted Buzzard, partially offset by higher production at Golden Eagle. Production in Libya temporarily resumed at the start of the quarter, but was shut in again in November. Libya continues to be impacted by political unrest, with the timing of a return to normal operations remaining uncertain.
During the fourth quarter of 2015, Refining and Marketing completed planned maintenance at the Montreal refinery. Average refinery utilization decreased to 93% in the fourth quarter, compared to 95% in the prior year quarter, primarily driven by unplanned maintenance at the Edmonton refinery and lower distillate demand in Western Canada.
Subsequent to the end of the fourth quarter, Suncor and COS reached an agreement to support Suncor's offer to purchase all of the shares of COS for 0.28 of a Suncor share for each COS share. The offer has the support of the Boards of Directors of both companies, and expires on February 5, 2016. The transaction value at the time of the agreement of approximately $6.6 billion includes COS' estimated debt of $2.4 billion.
"We are pleased that the Board of COS is supporting our offer," said Williams. "We believe that, working with the operator, we can drive real improvements in Syncrude's performance with a larger ownership interest, creating value for our shareholders."
Suncor continues to deliver on its commitment to add shareholder value and invest in long-term profitable growth in its core asset areas, while maintaining a strong financial position. In addition to extending the offer to COS shareholders, the company also completed its acquisition of an additional 10% working interest in the Fort Hills oil sands project from Total E&P Canada Ltd. for $360 million. Suncor's share in the project is now 50.8%.
To maintain our strong financial position and flexibility, Suncor has reduced its capital guidance for 2016 to a range of $6.0 to $6.5 billion from $6.7 to $7.3 billion issued in November of 2015. The capital spending reduction is not anticipated to impact the company's near term production targets.
Enbridge's Line 9 reversal was commissioned during the fourth quarter of 2015. The reversal will provide Suncor the flexibility of supplying its Montreal refinery with a full slate of inland-priced crude.
During the quarter, the Government of Alberta announced a new climate plan which includes a carbon pricing regime coupled with an overall emissions limit for the oil sands. The climate plan places some certainty on the future greenhouse gas (GHG) costs for Suncor, while the limit on oil sands emissions will force companies to ensure only the most profitable and efficient projects are developed.
The Government of Alberta conducted a review of the province's oil and gas royalties. Subsequent to year end, the new royalty system was announced and included no changes to the existing oil sand royalty rates, and improved transparency concerning disclosure of royalty information.
Oil Sands Operations
In the fourth quarter of 2015, Suncor safely completed planned maintenance at Upgrader 2 on a coker set, vacuum tower and hydrogen plant.
In Situ continued to focus on well pad construction to sustain existing production at Firebag and MacKay River, and successfully completed cost-effective debottlenecking activities at Firebag, which increased nameplate capacity from 180,000 bbls/d to 203,000 bbls/d.
Oil Sands Ventures
The Fort Hills project remains on schedule with construction more than 50% complete at the end of the fourth quarter. Spending during the quarter included engineering, procurement, module fabrication and site construction. The project is expected to deliver approximately 91,000 bbls/d of bitumen to Suncor, following the completion of the acquisition of an additional 10% working interest in the project during the fourth quarter. First oil is expected in the fourth quarter of 2017, and is expected to ramp up to 90% of capacity within twelve months thereafter.
Exploration and Production
Construction of the Hebron project continued in the fourth quarter of 2015, with first oil expected in late 2017. Effective January 1, 2016, working interests in the Hebron project have been reset. As a result, Suncor's working interest in the project decreased from 22.7% to 21.0%, with Suncor to be reimbursed for costs incurred to December 31, 2015.
Development drilling at Golden Eagle continued through the fourth quarter. Exploration drilling at the deepwater Shelburne Basin offshore Nova Scotia commenced in the fourth quarter, and will continue during 2016.
Operating (Loss) Earnings Reconciliation(1)
|Three months ended
|Twelve months ended
|Net (loss) earnings||(2 007)||84||(1 995)||2 699|
|Unrealized foreign exchange loss on U.S. dollar denominated debt||382||302||1 930||722|
|Impairments(2)||1 599||-||1 599||1 238|
|Impact of income tax rate adjustments on deferred taxes(3)||-||-||17||-|
|Gain on significant disposal(4)||-||-||(68)||(61)|
|Income tax charge(8)||-||-||-||54|
|Operating (loss) earnings(1)||(26)||386||1 465||4 620|
(1) Operating (loss) earnings is a non-GAAP financial measure. All reconciling items are presented on an after-tax basis. See the Non-GAAP Financial Measures Advisory section of Suncor's fourth quarter report to shareholders dated February 3, 2016 (the Quarterly Report).
(2) After-tax impairment charges of $798 million on certain offshore E&P assets as a result of declining crude oil pricing, $415 million (Q2 2014 - $297 million) against the company's Libyan assets, $290 million (Q2 2014 - $718 million) on the company's interest in the Joslyn mining project, and $96 million (Q2 2014 - $223 million) related to certain assets in the Oil Sands segment following a review of repurpose options due to previously revised growth strategies in the fourth quarter of 2015.
(3) Adjustments to the company's deferred income taxes from a 12% decrease in the U.K. tax rate on oil and gas profits from the North Sea in the first quarter of 2015 of $406 million, and a 2% increase in the Alberta corporate income tax rate in the second quarter of 2015 of $423 million.
(4) After-tax gain related to the sale of the company's Wilson Creek natural gas assets in the E&P segment in the third quarter of 2014 and the after-tax gain related to the sale of the company's share of certain assets and liabilities of Pioneer Energy in the Refining and Marketing segment in the second quarter of 2015.
(5) Restructuring charges related to cost reduction initiatives in the Corporate segment recorded in the first quarter of 2015.
(6) Business interruption insurance proceeds recorded in the first quarter of 2015 for the Terra Nova asset in the E&P segment.
(7) Reserves redetermination of 1.2 million barrels of oil receivable recorded in the second quarter of 2014 related to an interest in a Norwegian asset that Suncor previously owned.
(8) Represents a current income tax and associated interest charge recorded in the third quarter of 2014 related to the timing of tax depreciation deductions taken on certain capital expenditures incurred in a prior period in the Oil Sands segment.
Suncor has reduced its capital guidance for 2016 to a range of $6.0 to $6.5 billion from $6.7 to $7.3 billion issued on November 17, 2015, in part due to the deferral of Firebag planned maintenance to 2017.
The following 2016 full year outlook assumptions have also been adjusted: Brent at Sullom Voe to US$40/bbl from US$55/bbl, WTI at Cushing to US$39/bbl from US$50/bbl, WCS at Hardisty to US$26/bbl from US$35/bbl, and Cdn/US exchange rate from $0.75 to $0.70. For further details and advisories regarding Suncor's 2016 corporate guidance, see suncor.com/guidance
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WNA - Apart from adding capacity, utilisation of existing plants has improved markedly since 2000. In the 1990s capacity factors averaged around 60%, but they have steadily improved since and in 2010, 2011 and 2014 were above 81%. Balakovo was the best plant in 2011 with 92.5%, and again in 2014 with 85.1%.
WNA - India has a flourishing and largely indigenous nuclear power programme and expects to have 14.6 GWe nuclear capacity on line by 2024 and 63 GWe by 2032. It aims to supply 25% of electricity from nuclear power by 2050.
WNA - Mainland China has 38 nuclear power reactors in operation, about 20 under construction, and more about to start construction. The reactors under construction include some of the world's most advanced, to give a 70% increase of nuclear capacity to 58 GWe by 2020-21. Plans are for up to 150 GWe by 2030, and much more by 2050.
PLATTS - "The domestic uranium mining industry needs US government assistance to survive the foreign onslaught -- particularly from Russia and Kazakhstan -- that has undermined the US uranium industry while new players -- particularly China -- will soon make the situation worse," Energy Fuels and Ur-Energy said in a petition they jointly filed with the department.