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, 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.
“The value of our integrated model was front and centre this
quarter as strong financial results from our downstream and
offshore assets helped to offset the impact of lower Oil Sands
production, and our refineries were able to fully capture the lost
value associated with unfavourable heavy crude differentials at Oil
Sands,” said Steve Williams, president and chief executive officer.
“Our balance sheet strength allowed us to increase our stake in
Syncrude and further invest in offshore development. We also
increased our dividend and approved a renewal of our share
repurchase program, which reaffirms our commitment to return cash
to shareholders.”
- Funds from operations of $2.164 billion ($1.32 per common
share). Cash flow provided by operating activities, which includes
changes in non‑cash working capital, was $724 million ($0.44
per common share).
- Operating earnings of $985 million ($0.60 per common
share) and net earnings of $789 million ($0.48 per
common share).
- Refinery utilization of 98% and crude throughput of
453,500 barrels per day (bbls/d), which is the highest ever
for a first quarter.
- Fort Hills production averaged 29,800 bbls/d, including
bitumen froth sent to Oil Sands Base, with the second of three
extraction trains coming online at the end of the quarter and
ramping up ahead of schedule.
- Hebron production averaged 8,200 bbls/d and continues to
also ramp up ahead of schedule.
- Total upstream quarterly production was 689,400 barrels of
oil equivalent per day (boe/d).
- During the first quarter, Suncor closed the previously
announced acquisition of Mocal Energy Limited’s (Mocal) 5% interest
in Syncrude, adding approximately 17,500 bbls/d of sweet
synthetic crude oil capacity.
- The company continued to demonstrate its commitment to return
cash to shareholders by repurchasing $389 million of shares
during the first quarter and distributing $590 million
in dividends.
Financial Results
Suncor recorded first quarter 2018 operating earnings of
$985 million ($0.60 per common share), compared to
$812 million ($0.49 per common share) in the prior year
quarter. The quarter-over-quarter increase was a result of improved
crude oil pricing and increased refining margins, refinery
utilization of 98% and strong In Situ production, partially offset
by increased operating costs, which were primarily due to higher
planned and unplanned maintenance expenses and the addition of full
operating costs at Fort Hills while production ramps up. Oil Sands
results in the current period were impacted by a weather‑related
outage at the company’s Oil Sands Base plant, as well as
constrained capacity on a bitumen feed line at Syncrude, which
resulted in lower overall Oil Sands production. The planned
upgrader turnaround at Syncrude, originally scheduled to begin in
the second quarter of 2018, was advanced to the first quarter to
mitigate the impact of the line constraint on annual
production.
Funds from operations were $2.164 billion ($1.32 per common
share), compared to $2.024 billion ($1.21 per common share) in
the first quarter of 2017 and were influenced primarily by the same
factors impacting operating earnings noted above. Cash flow
provided by operating activities, which includes changes in
non‑cash working capital, was $724 million for the first
quarter of 2018, compared to $1.628 billion for the first
quarter of 2017. The change in non‑cash working capital in the
first quarter of 2018 resulted from an increase in accounts
receivable on an improving price environment, a substantial build
of product inventory in advance of major turnarounds and the
payment of deferred 2017 tax instalments.
Net earnings were $789 million ($0.48 per common share) in
the first quarter of 2018, compared to $1.352 billion ($0.81
per common share) in the prior year quarter. Net earnings for the
first quarter of 2018 included a $329 million unrealized
after-tax foreign exchange loss on the revaluation of
U.S. dollar denominated debt and a non-cash after-tax gain
associated with the exchange of the company’s mineral landholdings
in northeast British Columbia with Canbriam Energy Inc.
(Canbriam) of $133 million. Net earnings in the prior year
quarter included a $103 million unrealized after-tax foreign
exchange gain on the revaluation of U.S. dollar denominated
debt and a $437 million after-tax gain on the sale of the
company’s lubricants business and its interest in the Cedar Point
wind facility.
Operating Results
Suncor’s total upstream production was 689,400 boe/d in the
first quarter of 2018, compared to 725,100 boe/d in the prior
year quarter.
Oil Sands operations production was 404,800 bbls/d in the
first quarter of 2018, compared to 448,500 bbls/d in the prior
year quarter and upgrader utilization in the first quarter of 2018
declined to 80%, compared to 95% in the prior year period. The
decrease in production and upgrader utilization was a result of
lower production from Oil Sands Base due to a weather-related
outage early in the quarter, partially offset by strong In Situ
production. Oil Sands Base returned to normal operations by the end
of February.
Oil Sands operations cash operating costs per barrel increased
to $26.85 in the first quarter of 2018, from $22.55 in the prior
year quarter, primarily as a result of the weather-related outage
which led to lower production and an increase in unplanned
maintenance costs. In addition, higher planned maintenance costs
incurred in preparation for the Upgrader 1 turnaround, which
began in the second quarter of 2018, were partially offset by lower
natural gas prices.
Fort Hills began producing bitumen late in January and the ramp
up is progressing ahead of schedule, with production averaging
29,800 bbls/d, net to Suncor, in the first quarter of 2018,
including 5,200 bbls/d of bitumen froth further processed by
Oil Sands Base. The second of three extraction trains at Fort Hills
became operational at the end of the first quarter of 2018, adding
further production capacity, and Suncor expects to achieve 90% of
nameplate capacity ahead of schedule.
Suncor’s share of Syncrude production was 142,300 bbls/d in
the first quarter of 2018, compared to 142,100 bbls/d in the
prior year quarter. Production was comparable to the prior year
quarter as a result of unplanned incidents during both periods. The
first quarter of 2018 was impacted by constrained capacity on a
bitumen feed line and an upgrader turnaround originally scheduled
for the second quarter of 2018, which Syncrude advanced in order to
resolve the feed line issue and minimize the impact on overall
annual production, partially offset by the additional 5% working
interest acquired partway through the quarter. The first quarter of
2017 was impacted by a facility incident late in the quarter. The
events in each respective quarter resulted in Syncrude upgrader
reliability of 71% in the first quarter of 2018 and 75% in the
prior year quarter.
Syncrude cash operating costs per barrel were $50.75 in the
first quarter of 2018, an increase from $45.15 in the prior year
quarter, due to higher operating costs associated with advanced
planned upgrader maintenance, unplanned maintenance to address the
line constraint and an increase in preventive maintenance to
improve long-term reliability, partially offset by lower natural
gas prices.
Production volumes in Exploration and Production (E&P) were
117,700 boe/d in the first quarter of 2018, compared to
134,500 boe/d in the prior year quarter. The decrease was
primarily due to natural declines in the United Kingdom and
East Coast Canada, partially offset by the accelerated ramp up of
production at Hebron, which averaged 8,200 bbls/d in the
quarter. A third production well at Hebron came online early in the
second quarter of 2018.
“The ramp up at both Fort Hills and Hebron is progressing ahead
of schedule,” said Williams. “Production from these growth projects
and strong In Situ performance helped mitigate the impact of
operational challenges at Oil Sands Base and Syncrude. Oil Sands
Base returned to full production rates in February.”
The company’s crude oil and refined product sales benefited from
improved benchmark pricing across the integrated value chain in the
first quarter of 2018, when compared to the prior year quarter. For
the three months ended March 31, 2018, the impact of widening
heavy crude oil differentials on Oil Sands earnings was offset by
higher realized refining margins in the company’s Refining and
Marketing (R&M) segment. Higher refining benchmark crack
spreads in the first quarter of 2018 combined with improved product
location differentials and the benefit of consuming lower priced
heavy oil feedstock resulted in a 38% increase in realized margins,
as compared to the prior year quarter.
Refinery crude throughput in R&M was 453,500 bbls/d in
the first quarter of 2018, which is the highest ever for a first
quarter, compared to 429,900 bbls/d in the prior year quarter.
The increase was due to strong reliability at all of the company’s
refineries, with the prior year quarter being impacted by a
third-party power outage at the Commerce City refinery. Average
refinery utilization was 98% in the first quarter of 2018, compared
to 93% in the prior year quarter, and Suncor continued to build
product inventory of approximately 6 million barrels to
support second quarter sales during the upcoming Edmonton and
Sarnia turnarounds.
Strategy Update
Suncor’s 2018 capital program will be focused on the efficient
and effective ramp up at both of Suncor’s major growth projects,
Fort Hills and Hebron, development of step-out offshore projects
and improving the safety and reliability of the company’s operating
assets.
In the first quarter of 2018, total capital and exploration
expenditures were $1.214 billion (excluding capitalized
interest), compared to $1.206 billion in the prior year
period, with increased sustaining capital expenditures offsetting
the decrease in growth capital associated with the commissioning of
the company’s major growth projects, Fort Hills and Hebron. Higher
sustaining capital in the first quarter of 2018 was primarily
driven by an increase in planned maintenance activity in 2018. This
included preliminary planning work on the first full turnaround of
Oil Sands operations Upgrader 1 in five years, the advancement
of the upgrader turnaround at Syncrude, refinery turnaround
preparation, as well as an increase in spend associated with the
company’s recently approved tailings management plan. The company
anticipates the majority of the turnaround costs to be incurred in
the first half of 2018, and expects to remain within the capital
guidance range of $4.5 to $5.0 billion for the year.
Fort Hills began producing paraffinic froth‑treated bitumen from
the first of three secondary extraction trains on January 27,
2018, and the production ramp up to the project’s nameplate
capacity of 194,000 bbls/d (105,000 bbls/d net to Suncor)
is progressing ahead of schedule following the commissioning of the
second extraction train at the end of the first quarter of 2018.
The third secondary extraction train is expected to come online in
the second quarter of 2018. Also during the first quarter, Suncor
acquired additional working interests in the Fort Hills project
from Total E&P Canada Ltd. (Total). Under the terms of the
agreement reached in the fourth quarter of 2017, Suncor’s share of
the project increased to 54.11% and Teck Resources Limited’s share
increased to 21.31%, while Total’s share decreased to 24.58%.
Working interests in the Fort Hills project may be further adjusted
in accordance with the terms of the agreement.
During the first quarter of 2018, Suncor closed the previously
announced transaction to purchase an additional 5% interest in
Syncrude from Mocal for approximately $923 million, with a
closing date of February 23, 2018. Suncor’s share in the
Syncrude joint venture project is now 58.74%.
Production at Hebron continues to ramp up, with the second
production well coming online ahead of schedule during the first
quarter of 2018. At peak production, the project is expected to
produce more than 30,000 bbls/d, net to Suncor, ramping up
over the next several years.
During the first quarter of 2018, the company entered into an
agreement to acquire a 17.5% interest in the Fenja development
project offshore Norway, with the transaction expected to close in
the second quarter of 2018. The project has received government
approval and is a strategic fit for Suncor’s offshore portfolio
that is expected to provide profitable growth in an area where
Suncor has existing knowledge, expertise and assets. Other E&P
activity in the first quarter included development drilling at
White Rose, Terra Nova, Hebron and Hibernia, and development work
on the West White Rose Project and the Norwegian
Oda project.
During the first quarter of 2018, Suncor closed the previously
announced transaction with Canbriam, a private natural gas company,
to exchange all of Suncor’s northeast British Columbia mineral
landholdings, and consideration of $52 million, for a 37%
equity interest in Canbriam.
“The acquisitions in the first quarter highlight Suncor’s
commitment to our core assets and profitable growth,” said
Williams. “Our increased ownership position in Syncrude reflects
our belief in the asset’s further long-term potential and the
opportunity to create significant value through integration.”
During the first quarter of 2018, Suncor’s Board of Directors
approved a 12.5% dividend increase and an additional
$2.0 billion in authority for share repurchases. The company
also repurchased and cancelled $389 million of its own shares
in the first quarter of 2018, for a total of $1.8 billion to
the end of the quarter.
Operating Earnings Reconciliation(1)
|
Three months ended March 31 |
|
($ millions) |
2018 |
|
2017 |
|
|
Net
earnings |
789 |
|
1 352 |
|
|
Unrealized foreign exchange loss (gain) on U.S. dollar
denominated debt |
329 |
|
(103 |
) |
|
Gain on significant disposals(2) |
(133 |
) |
(437 |
) |
|
Operating
earnings(1) |
985 |
|
812 |
|
|
(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 after‑tax gain of $133 million in the E&P segment
related to the asset exchange with Canbriam for the company’s
mineral landholdings in northeast British Columbia in the first
quarter of 2018. The first quarter of 2017 included a
$354 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 full year business environment outlook
assumptions to reflect average actual year‑to‑date realized prices
plus forward curve pricing. Brent Sullom Voe has been updated to
US$67.00 from US$58.00, WTI at Cushing to US$63.00 from US$55.00,
WCS at Hardisty to US$41.00 from US$40.00, New York Harbor
3‑2‑1 crack to US$18.00 from US$16.00, AECO‑C Spot to $1.50
from $2.50 and the Cdn$/US$ exchange rate to 0.78 from 0.80.
These updates have resulted in a corresponding increase to full
year current income tax to $1,050 million –
$1,350 million from $450 million –
$750 million. For further details and advisories regarding
Suncor’s 2018 corporate guidance, see suncor.com/guidance.
Normal Course Issuer Bid
The Toronto Stock Exchange (TSX) accepted a notice filed by
Suncor of its intention to renew its normal course issuer bid
(the NCIB) to continue to purchase shares under its previously
announced buyback program through the facilities of the TSX,
New York Stock Exchange and/or alternative trading platforms.
The notice provides that Suncor may purchase for cancellation up to
approximately $2.15 billion worth of its common shares
beginning May 4, 2018 and ending May 3, 2019.
The actual number of common shares that may be purchased and the
timing of any such purchases will be determined by Suncor. Suncor
believes that, depending on the trading price of its common shares
and other relevant factors, purchasing its own shares represents an
attractive investment opportunity and is in the best interests of
the company and its shareholders. The company does not expect the
decision to allocate cash to repurchase shares will affect its
long-term growth strategy. Between May 1, 2017 and April 30,
2018 and pursuant to Suncor’s previous normal course issuer bid,
Suncor repurchased 43,213,523 shares on the open market for
approximately $1.85 billion, at a weighted average price of
$42.83 per share. Pursuant to the NCIB, Suncor has agreed that
it will not purchase more than 52,285,330 common shares, which is
equal to approximately 3% of Suncor’s issued and outstanding
common shares.
Subject to the block purchase exemption that is available to
Suncor for regular open market purchases under the NCIB, Suncor
will limit daily purchases of Suncor common shares on the TSX in
connection with the NCIB to no more than 25% (725,092) of the
average daily trading volume of Suncor's common shares on the TSX
during any trading day. Purchases under the NCIB will be made
through open market purchases at market price, as well as by other
means as may be permitted by the TSX and securities regulatory
authorities, including by private agreements. Purchases made by
private agreement under an issuer bid exemption order issued by a
securities regulatory authority will be at a discount to the
prevailing market price as provided in the exemption order. In the
future, Suncor may enter into an automatic share purchase plan in
relation to purchases made in connection with the NCIB.
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 May 1, 2018 (the MD&A) and reconciled to GAAP
measures in the Consolidated Financial Information and Segment
Results and Analysis sections of the MD&A. Oil Sands operations
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 is 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: expectations about Fort
Hills, including that the ramping up of the project is ahead of
schedule, that the project will achieve 90% of nameplate capacity
ahead of schedule, that the third secondary extraction train will
come online in the second quarter of 2018, the project’s nameplate
capacity of 194,000 bbls/d (105,000 bbls/d net to Suncor) and the
possibility that working interests in the Fort Hills project may be
further adjusted in accordance with the terms of the agreement with
the Fort Hills partners; the expectation that, at peak production,
the Hebron project is expected to produce more than 30,000 bbls/d,
net to Suncor, ramping up over the next several years, and that the
ramping up of the project is ahead of schedule; the expectation
that advancing the planned upgrader turnaround at Syncrude into the
first quarter will mitigate the impact to annual production of the
bitumen feed line constraint that occurred in the first quarter of
2018; the focus of Suncor’s 2018 capital program on the efficient
and effective ramp up at both of Suncor’s major growth projects,
Fort Hills and Hebron, development of step-out offshore projects
and improving the safety and reliability of the company’s operating
assets; the expectations that the majority of turnaround costs will
be incurred in the first half of 2018 and that the company will
remain within the capital guidance range of $4.5 to $5.0 billion
for the year; the expectation that the transaction to acquire a
17.5% interest in the Fenja development project will close in the
second quarter of 2018 and that the project will provide profitable
growth in an area where Suncor has existing knowledge, expertise
and assets; Suncor’s belief in Syncrude’s further long-term
potential and the opportunity to create significant value through
integration; Suncor’s commitment to return cash to shareholders,
plans respecting the NCIB, the belief that, depending on the
trading price of its common shares and other relevant factors, the
company purchasing its own shares represents an attractive
investment opportunity and is in the best interests of the company
and its shareholders, and the company’s expectation that the
decision to allocate cash to repurchase shares will not affect its
long-term growth strategy; and Suncor’s business environment
outlook assumption for Brent Sullom Voe, WTI at Cushing, WCS at
Hardisty, New York Harbor 3-2-1, AECO-C Spot, the Cdn$/US$ exchange
rate, and full year current income taxes. 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 first quarter 2018 Report to
Shareholders and the financial statements and notes (unaudited) can
be downloaded at suncor.com/financialreporting.
Suncor’s updated Investor Relations presentation is available
online, visit suncor.com/investor-centre.
To listen to the webcast discussing Suncor's first
quarter results, visit suncor.com/webcasts. Representing management
will be Steve Williams, president and chief executive officer, Mark
Little, chief operating officer and Alister Cowan, executive vice
president and chief financial officer.
Media inquiries:403-296-4000media@suncor.com
Investor inquiries:800-558-9071invest@suncor.com
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