Suncor reports C$2bn net loss as it weathers low crude oil price environment

TORONTO (miningweekly.com) – Canadian oil producer Suncor Energy on Wednesday reported a net loss for the fourth quarter ended December 31, of C$2-billion, or C$1.38 a share, as the Canadian oil industry buckled under American benchmark oil prices that reached below $50/bl for the period.

This was compared with net earnings of C$84-million (C$0.06 a common share) in the prior-year quarter, when oil was trading around the $100/bl mark.

The company booked noncash impairment charges of C$1.6-billion and an unrealised after-tax foreign exchange loss of $382-million on the revaluation of US dollar denominated debt.

Cash flow from operations totalled $1.29-billion, or $0.90 per common share, reflecting the lower crude oil price environment, compared with cash flow from operations of $1.49-billion, or $1.03 per common share, a year earlier. For the twelve months ended December 31, Suncor reported free cash flow of C$139-million, compared with $2.1-billion for 2014.

"In 2015 we generated cash flow that exceeded our annual sustaining capital and dividend commitments. 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,” said president and CEO Steve Williams during an analyst conference call.

Suncor's total upstream output increased to 582 900 bbl of oil equivalent a day (boe/d) in the fourth quarter, compared with 557 600 boe/d in the comparable quarter a year earlier, mainly owing to strong reliability in its oil sands operations.

Oil sands operations output increased 14% year-on-year to 439 700 bbl/d in the fourth quarter, compared with 384 200 bbl/d in the previous comparable quarter, mainly as a result of record in situ production and reliable operations across all assets after planned maintenance was completed earlier in the quarter.

Cash operating costs per barrel for oil sands operations fell nearly 19% in the fourth quarter to $28/bl, compared with $34.45/bl, as the higher output, coupled with lower operating expenses as a result of cost-reduction initiatives, lower unplanned maintenance and lower natural gas prices, conspired to drive costs down.

"We have surpassed the reliability and cost reduction targets we established in early 2015. Operating costs across the organisation are down almost C$1-billion from last year, while oil sands upgrading reliability exceeded 90%, more than a year ahead of our original plan,” said Williams.

Suncor's share of Syncrude production was 30 900 bbl/d in the fourth quarter, compared with 35 100 bbl/d in the fourth quarter of 2014, as unplanned maintenance activities during the most recent period cut into productivity.

Meanwhile, production volumes in the exploration and production (E&P) segment decreased nearly 19% year-on-year to 112 300 boe/d in the fourth quarter, owing to shut-in production in Libya, natural declines at Terra Nova, located about 350 km off the coast of Newfoundland, and temporary export pipeline constraints that impacted Buzzard, located about 100 km north-east of Aberdeen, in the UK, but were partially offset by higher output at Golden Eagle, also in the UK North Sea and operated by Nexen Petroleum.

Suncor advised that production in Libya temporarily resumed at the start of the quarter, but was shut in again in November, as Libya continued to be impacted by political unrest, with the timing of a return to normal operations remaining uncertain.

During the fourth quarter, Suncor’s refining and marketing segment completed planned maintenance at the Montreal refinery. However, average refinery use decreased to 93% in the fourth quarter, compared with 95% in the 2014 fourth quarter, owing to unplanned maintenance at the Edmonton refinery and lower distillate demand in Western Canada.

LOWER FOR LONGER
Suncor had reduced its capital guidance for 2016 to a range of C$6-billion to C$6.5-billion, from C$6.7-billion to C$7.3-billion, in part owing to the deferral of planned maintenance at Firebag to 2017.

The company also lowered its 2016 full-year price assumptions for Brent crude at Sullom Voe, in the North Sea, to $40/bl from $55/bl; West Texas Intermediate at Cushing to $39/bl from $50/bl; Western Canadian Select crude at Hardisty, to $26/bl from $35/bl; and the Canadian/US dollar exchange rate from C$0.75 to C$0.70.

Moody’s Investor Services had recently fingered China’s economic slowdown for its gloomy outlook for the natural resources industry, citing a “substantial risk” that oil prices would recover only slowly from 12-year lows of less than $30/bl, prompting it to also recalibrate its commodity price outlook for 2016.

Despite the price of oil dipping to 2003 levels, Suncor had succeeded in swaying fellow oil sands operator Canadian Oil Sands (COS) management to accept a sweetened C$6.6-billion hostile offer for the company. The offer was expected to close on Friday.

The deal would provide Suncor with COS’s 37% interest in synthetic crude oil major Syncrude which, combined with its 12% stake, would provide Suncor with a controlling interest in the operation. Located north of Fort McMurray, this was one of the largest oil sands operations in Alberta’s oil patch. Suncor would get access to COS’s upgrader and 1.6-billion barrels of reserves.

It would also be afforded an opportunity to develop Syncrude’s Lease 29, which was closely located to its existing operations and would provide replacement for its North Steepbank mine, which was nearing the end of its life.