Suncor released a corporate update today, including revised 2020
corporate guidance for capital, operating costs and production
outlook, reflecting the significant decline in the crude oil price
and uncertainty surrounding the economic impact of COVID-19.
“The simultaneous supply and demand shocks are having a
significant impact on the global oil industry. We are
adjusting our spending and operational plans to be prepared in the
event the current business environment persists for an extended
period of time,” said Mark Little, president and chief executive
officer. “Our business model and financial strategy are designed to
withstand volatile environments.”
Suncor’s business model is built on long life, low decline
assets and capturing the full value of the barrel through
integration. This model, paired with disciplined adherence to
financial management and capital allocation, has consistently
delivered value to shareholders while maintaining a strong balance
sheet. Suncor’s credit metric history and strong levels of
liquidity through various cycles are evidence of this
discipline.
A key strategy for weathering the unprecedented market
challenges is remaining focused on creating maximum value from
production, rather than being volume focused. Suncor believes this
is critical to creating long term shareholder value and that the
integrated model is an important competitive advantage. With
growing global oil inventories, Suncor’s ability to upgrade,
refine, and sell production to consumers through its retail network
will continue to generate significant value.
Our actions to respond to these unprecedented market challenges
will result in reductions in capital spending and operating costs
as well as a significant increase to the financial liquidity of the
business in 2020, as detailed below.
CAPITAL GUIDANCE UPDATE
The revised capital program is expected to be between $3.9 and
$4.5 billion, a $1.5 billion or 26% decrease compared to the
original 2020 capital guidance midpoint. The updated capital spend
is concentrated on sustaining capital and continuing with a limited
number of low capital intensity, value creating projects, as
follows:
- $2.3 – 2.7 billion related to asset sustainment and maintenance
activities;
- $600 – 750 million on E&P step out developments; and
- Approximately $1 billion on high return / cost reduction
projects largely independent of commodity price volatility.
Suncor’s original capital guidance was $5.4 to $6.0 billion,
with approximately 50% allocated to economic investment and 50% to
sustaining capital. By the end of Q1 2020, Suncor is expected
to have spent approximately $1.3 billion in capital. In order to
sustain the financial strength of the business within the current
economic environment, it is crucial to reduce the capital budget.
Suncor is able to make these reductions because of the flexibility
previously built into the budget. The targeted reductions include a
combination of reducing economic investment and sustaining capital
by deferring and cancelling projects, while maintaining a focus on
safety and asset reliability over the long term.
The Syncrude / Suncor interconnecting pipelines, deployment of
autonomous haul trucks at Fort Hills, and investments in technology
for the Supply and Trading business and core business systems will
continue to be funded and proceed on schedule. The Cogeneration
Facility at Base Plant, Forty Mile Wind project, and some offshore
E&P step out development timelines have been extended for up to
two years. The operator of West White Rose has announced that work
has been suspended for an indefinite period. We have also deferred
new in-situ well pads until financial conditions improve and
cancelled several small economic investment projects across the
business.
Capital
Expenditures (C$ millions) (1) |
|
2020 Updated Full Year Outlook March 23, 2020 |
% EconomicInvestment (2) |
|
Upstream Oil Sands |
2,650 – 2,900 |
25% |
|
Upstream E&P |
600 – 750 |
95% |
|
Total Upstream |
3,250 – 3,650 |
40% |
|
Downstream |
550 – 650 |
20% |
|
Corporate |
100 – 200 |
90% |
|
Total |
3,900 – 4,500 |
40% |
|
|
|
|
|
1. Capital
expenditures exclude capitalized interest of approximately $155
million.2. Balance of capital expenditures represents Asset
Sustainment and Maintenance capital expenditures. For definitions
of Economic Investment and Asset Sustainment and Maintenance
capital expenditures, see the Capital Investment Update section of
Suncor’s Management’s Discussion and Analysis dated February 26,
2020 (the “MD&A”). |
PRODUCTION & OPERATING COST GUIDANCE
UPDATE
Across the company, Suncor remains committed to the health and
safety of all personnel, and on the safety and continuity of the
operations. To limit the risk and transmission of COVID-19, only
location essential personnel are working at Suncor sites and
offices.
It is evident that as a result of significant efforts to limit
the impact of COVID-19 through social distancing and having
non-essential personnel stay home across many countries around the
world, petroleum demand has declined. This is particularly
true for jet fuel and gasoline. Product demand in Canada is
starting to decline and is expected to continue over the next few
quarters. Suncor has begun to adjust refinery utilisations as a
result. Due to significant uncertainty, we have not yet updated our
guidance in this area, although we anticipate it will be
lower. An update will be provided on the first quarter
earnings call in early May.
Suncor’s updated upstream production guidance includes the best
estimate, at this time, of the impact on crude markets of lower
global product demand and industry wide lower refinery
utilizations. Global upstream production will need to be reduced or
remain in storage unsold. However, this is highly uncertain and is
directly related to how long it will take to significantly reduce
the global threat of COVID-19.
The value over volume strategy maximizes integration of Suncor’s
upstream production through its upgraders and refineries, while
reducing exposure to Alberta bitumen prices. This results in higher
per barrel margin even though unit costs may be higher.
Crude by rail is now uneconomic and our updated guidance
excludes any production volumes associated with rail transportation
under the Province of Alberta’s Special Production Allowance
program. Mandatory production curtailment is assumed to continue
through 2020, which results in some assets operating at less than
efficient rates.
Fort Hills continues to be disproportionately impacted by
mandatory production curtailment with the asset operating at lower
than optimal facility utilization. The Fort Hills partners have
agreed to reduce Fort Hills to a one train operation, running at
full utilization. This will increase cash flow, particularly when
bitumen prices are extremely low, as we are able to significantly
reduce variable costs. However, unit costs for the remaining
production will be higher because of this decision as a result of
fixed costs being covered by lower volumes. These assets have far
less flexibility versus Suncor’s in-situ assets to ramp up and
down. The partners will continue to monitor market conditions and
re-evaluate these decisions as market conditions change.
The Syncrude annual coker turnaround was planned in Q2 but is
now deferred until Q3 with a minor impact on volumes. The impact of
COVID-19 on Suncor’s planned maintenance schedules is currently
being assessed. This includes evaluating alternate options for the
Terra Nova Asset Life Extension, as Spain is no longer able to
accommodate the dry dock slot due to that country’s COVID-19
response. MacKay River’s return to operations has been
intentionally extended to May due to COVID-19 concerns and low
bitumen prices.
Suncor is also reducing total operating expenditures across the
business by more than $1 billion versus $11.2 billion of
expenditures in 2019. Updated asset-based cash cost per unit
guidance below reflects the revised production guidance and reduced
operating expenditures.
Guidance for Oil Sands operations and Syncrude cash operating
costs per barrel remain unchanged at $24.00 - $26.50 (US $17.00 -
$18.75) and $35.00 - $38.00 (US $24.75 - $27.00), respectively.
Fort Hills cash operating costs per barrel have been updated and
are now expected to be $34.00 - $37.00 (US $24.00 - $26.25).
The production guidance table below is inclusive of the planned
reductions in production volumes as Suncor continues to execute the
strategy of generating value over volume.
Production & Refinery Utilization
(as of March 23, 2020) |
|
|
|
Q1 2020 Estimates |
2020 Updated Full Year
Outlook |
Suncor Total Production (boe/d) |
743,000 |
740,000 –
780,000
(5) |
Oil Sands operations (bbls/d) |
378,000 |
410,000 – 435,000 (6) |
Synthetic Crude Oil (bbls/d) |
331,000 |
310,000 – 325,000 |
Bitumen (bbls/d) |
47,000 (1) |
100,000 – 110,000 |
Fort Hills (bbls/d) Suncor working interest of 54.11% |
80,000 (2) |
55,000 – 65,000 |
Syncrude (bbls/d) Suncor working interest of 58.74% |
175,000 (3) |
165,000 – 180,000 |
Exploration & Production (boe/d) |
110,000 (4) |
100,000 – 115,000 (5) |
|
|
|
Suncor Refinery Throughput (bbls/d) |
445,000 |
440,000 – 460,000 (7) |
Suncor Refinery Utilization |
96% |
95% – 99% (7)(8) |
Refined Product Sales (bbls/d) |
545,000 |
530,000 – 560,000 (7) |
|
|
|
1. Bitumen
production was impacted by extremely cold weather, significantly
impacting productivity and repair of the MacKay River facility.2.
Fort Hills’ first quarter production reflects the impact of
mandatory production curtailment.3. Syncrude production was
impacted by a hydrotreater compressor incident occurring in early
March.4. Exploration & Production reflects Terra Nova offline
for the quarter.5. At the time of publication, production in Libya
continues to be affected by political unrest and therefore no
forward-looking production for Libya is factored into the
Exploration and Production and Suncor Total Production guidance.
Production ranges for Oil Sands operations, Fort Hills, Syncrude
and Exploration and Production are not intended to add to equal
Suncor Total Production.6. Oil Sands operations production includes
synthetic crude oil, diesel, and bitumen and excludes Fort Hills
PFT bitumen and Syncrude synthetic crude oil production. These
ranges reflect the integrated upgrading and bitumen production
performance risk. 7. Refinery throughput, refinery utilization and
refined product sales metrics have not been updated and do not
reflect the risk of weakening demand for the products we produce as
a result of the COVID-19 pandemic. The company will include an
update to these metrics in its first quarter report to
shareholders. The NY Harbor refining margin may not be consistent
with the potential changes in operating plans underlying the
current refinery throughput, utilization and refined product sales
guidance.8. Refinery utilization is based on the following crude
processing capacities: Montreal - 137,000 bbls/d; Sarnia - 85,000
bbls/d; Edmonton – 142,000 bbls/d; and Commerce City - 98,000
bbls/d. |
Suncor's corporate guidance provides management's
outlook for 2020 in certain key areas of the company's business.
Users of this forward-looking information are cautioned that actual
results may vary materially from the targets disclosed. Readers are
cautioned against placing undue reliance on this guidance.
CORPORATE & FINANCIAL UPDATE
Safety is at the core of Suncor values. As a result, the
Investor Showcase, previously planned for May 2020, has been
deferred to manage the risk of COVID-19 transmission. The AGM will
be held on May 6th, 2020 but the Board and full executive team will
not be present in person at the meeting. Unlike prior years, the
AGM will not be open to the general public and will be limited to
registered shareholders only. Suncor is discouraging physical
attendance and instead requests shareholders view the meeting via
webcast with details to be provided at a later date.
The corporate target of $2 billion of incremental free funds
flow by 2023 continues to be a critical target of Suncor’s by
enhancing margin, improving business processes, and reducing
operating and sustaining capital costs. However, in order to
maintain balance sheet strength, financial flexibility and
liquidity, the execution timeline of a number of these initiatives
has been revised, as outlined in the capital section above. As a
result, full achievement of the $2 billion target is anticipated to
be delayed by up to 2 years to 2025.
Disciplined capital allocation remains core to delivering value
to shareholders. Given the current business environment, share
repurchases have been suspended.
Suncor’s strategy of maintaining a strong balance sheet and
liquidity throughout all market environments remains a key focus.
As of December 31, 2019, Suncor had approximately $6.7 billion of
liquidity, no debt maturities in 2020, $1.4 billion in 2021, and
$225 million in 2022. As of March 31, 2020, Suncor has
significantly increased its liquidity securing an additional $2.3
billion of credit facilities with its key banking partners. This
increased financial flexibility ensures the company will have
access to adequate financial resources should it be required.
“Our strategy has been, and continues to be, to drive
shareholder returns through our integrated model while maintaining
financial strength and flexibility,” said Mark Little. “Our actions
are intended to ensure the long-term health of our business while
reliably delivering critical energy to consumers.”
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 belief that its
business model and financial strategy are designed to withstand
volatile environments; the belief that remaining focused on
creating maximum value from production, rather than being volume
focused is critical to creating long term shareholder value and
that Suncor's integrated model is an important competitive
advantage in achieving this; the expectation that, with growing
global oil inventories, Suncor’s ability to upgrade, refine
and sell production to consumers through its retail network will
continue to generate significant value; the expected impacts of
Suncor's actions to respond to the unprecedented market challenges;
the expectation that Suncor's capital spending program will be
between $3.9 and $4.5 billion (and the expectations of where that
spending will be directed and the timing of the various capital
projects); Suncor's commitment to the health and safety of all
personnel, and on the safety and continuity of the operations;
expectations for the first quarter of 2020, including total
upstream production of approximately 743,000 boe/d, Oil Sands
operations production of approximately 378,000 bbls/d, Synthetic
Crude Oil production of approximately 331,000 bbls/d, Bitumen
production of approximately 47,000 bbls/d, Fort Hills
production of approximately 80,000 bbls/d, net to Suncor, Syncrude
production of approximately 175,000 bbls/d, net to Suncor, E&P
production of approximately 110,000 boe/d, Suncor Refinery
Throughput of approximately 445,000 bbls/d, Suncor Refinery
Utilization of 96% and Refined Product Sales of approximately
545,000 bbls/d; Suncor's expectations relating to product demand
and the impacts it may have on refinery utilizations; that Suncor's
value over volume strategy will reduce exposure to Alberta bitumen
process which will result in higher per barrel margins even though
unit costs may be higher; operations; the expected impact of the
Government of Alberta mandatory production curtailments and
assumption relating to the duration thereof; the expected impacts
of the decision to reduce Fort Hills to a one train operation;
Suncor's expectations with respect to planned maintenance and
turnarounds, including the timing thereof and the impact of such
maintenance and turnarounds; that MacKay River’s return to
operations will occur in May; the plans to reduce total operating
expenditures by more than $1 billion across Suncor's business;
Suncor's $2 billion incremental free funds flow target, including
the projects that are expected to drive Suncor towards this target
and the timing of achieving this target; Suncor's expectations
around production, including planned average upstream production of
740,000 - 780,000 boe/d and planned ranges for Oil Sands
operations (410,000 – 435,000 bbls/d), made up of Synthetic Crude
Oil (310,000 – 325,000 bbls/d) and Bitumen (100,000 – 110,000
bbls/d), Suncor's working interest in Fort Hills 55,000 – 65,000
bbls/d), Suncor's working interest in Syncrude (165,000 – 180,000
bbls/d) and Exploration and Production (100,000 – 115,000
boe/d); Suncor's expected Oil Sands operations cash operating
costs, projected to be in the range of $24.00 - $26.50 (US $17.00
– $18.75) per barrel; expected Fort Hills cash operating
costs, projected to be in the range of $34.00 - $37.00 (US $24.00 –
$26.25) per barrel; expected Syncrude cash operating costs,
projected to be in the range of $35.00 – $38.00 (US $24.75 –
$27.00) per barrel; Suncor's expected Refinery Throughputs (440,000
– 460,000 bbls/d) and Utilization (95% – 99%) and Suncor's expected
Refined Product Sales (530,000 – 560,000 bbls/d); the timing of
upcoming debt maturities; Suncor's belief that its financial
flexibility ensures the company will have access to adequate
financial resources should it be required; and Suncor's belief that
its actions will ensure the long-term health of its business
while reliably delivering critical energy to consumers. 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 may be identified by words like
"guidance", "outlook", "will", "expected", "estimated", "focus",
"planned", "believe", "anticipated", "forecast", "target" 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.
Assumptions for the Oil Sands operations, Syncrude and Fort
Hills 2020 production outlook include those relating to reliability
and operational efficiency initiatives that the company expects
will minimize unplanned maintenance in 2020. Assumptions for the
Exploration and Production 2020 production outlook include those
relating to reservoir performance, drilling results and facility
reliability. Factors that could potentially impact Suncor's 2020
corporate guidance include, but are not limited to:
- Bitumen supply. Bitumen supply may be dependent on unplanned
maintenance of mine equipment and extraction plants, bitumen ore
grade quality, tailings storage and in situ reservoir
performance.
- Third-party infrastructure. Production estimates could be
negatively impacted by issues with third- party infrastructure,
including pipeline or power disruptions, that may result in the
apportionment of capacity, pipeline or third-party facility
shutdowns, which would affect the company's ability to produce or
market its crude oil.
- Performance of recently commissioned facilities or well pads.
Production rates while new equipment is being brought into service
are difficult to predict and can be impacted by unplanned
maintenance.
- Unplanned maintenance. Production estimates could be negatively
impacted if unplanned work is required at any of our mining,
extraction, upgrading, in situ processing, refining, natural gas
processing, pipeline, or offshore assets.
- Planned maintenance events. Production estimates, including
production mix, could be negatively impacted if planned maintenance
events are affected by unexpected events or are not executed
effectively. The successful execution of maintenance and start-up
of operations for offshore assets, in particular, may be impacted
by harsh weather conditions, particularly in the winter
season.
- Commodity prices. Declines in commodity prices may alter our
production outlook and/or reduce our capital expenditure
plans.
- Foreign operations. Suncor's foreign operations and related
assets are subject to a number of political, economic and
socio-economic risks.
- Government Action. This guidance reflects the production
curtailments imposed by the Government of Alberta. Further action
by the Government of Alberta regarding production curtailment may
impact Suncor’s corporate guidance and such impact may be
material.
Suncor's MD&A, together with Suncor's most recently filed
Annual Information Form, Form 40-F and Annual Report to
Shareholders 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 email request to invest@suncor.com; by calling
1-800-558-9071; or by referring
to suncor.com/FinancialReports or 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.
NON-GAAP FINANCIAL MEASURES
Oil Sands operations cash operating costs, Fort Hills cash
operating costs, Syncrude cash operating costs and free funds flow
are not prescribed by Canadian generally accepted accounting
principles ("GAAP"). These non-GAAP financial measures are included
because management uses the information to analyze business
performance, including on a per barrel basis, as applicable, and it
may be useful to investors on the same basis. These non-GAAP
financial measures do not have any standardized meaning and,
therefore, are unlikely to be comparable to similar measures
presented by other companies. These non-GAAP financial measures
should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with GAAP. These
non-GAAP financial measures are defined in the Non-GAAP Financial
Measures section of the MD&A and, for the period ended December
31, 2019, are reconciled to the comparable GAAP measure in the
MD&A. Oil Sands operations cash operating costs of $24.00 -
$26.50 (US $17.00 - $18.75) per barrel is based on the assumptions
that: (i) Suncor will produce 410,000 – 435,000 bbls/d at Oil Sands
operations (of which 310,000 – 325,000 bbls/d will be synthetic
crude oil and 100,000 – 110,000 will be bitumen); and (ii) natural
gas used at Suncor's Oil Sands operations (AECO - C Spot ($CAD))
will be priced at an average of $1.75/GJ over 2020. Fort Hills cash
operating costs of $34.00 - $37.00 (US $24.00 - $26.25) per barrel
is based on the assumptions that: (i) Fort Hills production (net to
Suncor) will be 55,000 – 65,000 bbls/d; and (ii) natural gas used
at Fort Hills (AECO - C Spot ($CAD)) will be priced at an average
of $1.75/GJ over 2020. Syncrude cash operating costs of $35.00 -
$38.00 (US $24.75 - $27.00) per barrel is based on the assumptions
that: (i) Syncrude will produce 165,000 – 180,000 bbls/d of
synthetic crude oil (net to Suncor); and (ii) natural gas used at
Syncrude (AECO - C Spot ($CAD)) will be priced at an average of
$1.75/GJ over 2020. The Syncrude cash operating costs per barrel
and Fort Hills cash operating costs per barrel measures may not be
fully comparable to similar information calculated by other
entities (including Suncor's Oil Sands operations cash operating
costs per barrel) due to differing operations.
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
Media inquiries: 833-296-4570 media@suncor.com
Investor inquiries: 800-558-9071 invest@suncor.com
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