Suncor Beats on Earnings, Cuts Guidance

Zacks

Canada’s largest energy firm, Suncor Energy Inc. (SU) reported third quarter 2013 earnings of 95 Canadian cents (91.4 US cents) per share, comfortably surpassing the Zacks Consensus Estimate of 80 cents, thanks to record results from the oil sand segment. The earnings also reflect an increase of 11 Canadian cents from the year-ago quarter.

Total revenue of C$10,373 million (US $9,979.9 million) was up 8.3% from the year-ago level of C$9,576 million. The integrated model of the company aided the quarter’s results as Suncor took advantage of both inland oil pricing through its oil sands segment and global pricing through refining activities.  

However, revenues were lower than $10,517 million sales expected by the Zacks consensus amid a drop in output from Syncrude operations.

Cash flow from operations was reported at approximately C$2.53 billion, down approximately 7.8% from the third quarter of 2012 owing to increased income tax expense.

On Oct 30, Suncor received approval to move ahead with the Fort Hills oil sands mining project.  The company will act as a developer and operator with a 40.8% interest in the project.

Production

Upstream production during the quarter was 595,000 barrels of oil equivalent per day (BOE/d), higher than the third-quarter 2012 level of 535,300 BOE/d.

Oil sands volume was at a record high of 396,400 barrels per day (Bbl/d), up 16.1% from 341,300 Bbl/d in the prior-year quarter. Production increase at Firebag, completion of held-up projects, and strong performance in mining on the back of new bitumen assets aided the segment’s results.

Production from Syncrude operations, however, fell 27.7% year over year to 27,200 Bbls/d in the quarter. The decrease was due to the effect of maintenance activities undertaken in the reported quarter.  

Suncor’s Exploration and Production segment (E&P) – consisting of international and offshore and natural gas segments – yielded 171,400 BOE/d against 156,400 BOE/d in the prior-year quarter. The increase was primarily due to lower maintenance activities at assets across the East Canadian coast. However, production was partially offset by terminal shutdowns in Libya owing to political instability.  

The Refining and Marketing segment also took advantage of the global oil pricing and reported record results of 448,800 Bbl/d of refinery crude against 441,400 Bbl/d in the year-ago quarter. Refinery utilization was 98% in the quarter, up 1% from the prior-year quarter.

Product Sales

Suncor’s total product sales of 90,400 cubic meters per day were up 3.3% from the prior-year quarter primarily due to an increase in production volume.

The depreciation, depletion, amortization and impairment expenses of Suncor increased 21.7% to C$1,089 million year over year.

Balance Sheet & Capital Expenditure

As of Sep 30, 2013, Suncor had cash and cash equivalents of C$5,340.0 million and total long-term debt (including current portions) of C$10,362 million. The debt-to-capitalization ratio was approximately 20.1%. Suncor also incurred C$1,539 million as capital and exploration expenditure during the quarter.

Dividend and Share Repurchase

Suncor paid a dividend of 20 Canadian cents per share on Sep 25 to shareholders of record as of Sep 4. During the reported quarter, the company repurchased shares worth C$426 million.

Guidance

Suncor has lowered its production guidance to 545,000–590,000 BOE/d from the previously announced range of 570,000–620,000 BOE/d. This reduced forecast can be traced to several factors such as production shutdown in Libya, maintenance activities in Syncrude and decrease in North America production due to the Western Canada asset sale.

The company has also lowered its capex budget to C$6.7 billion from C$7.0 billion. Project prioritization in the E&P segment that led to lower estimates as well as a reduction in the allocated growth capital fund were the reasons behind the guidance cut.

Zacks Rating

Suncor currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

However, other firms in the energy sector that are expected to significantly outperform the broader U.S. equity market over the next one to three months include Clayton Williams Energy, Inc. (CWEI) and Matador Resources Company (MTDR) which currently sports a Zacks Rank #1 (Strong Buy) or Linn Energy, LLC (LINE) which holds a Zacks Rank #2 (Buy).
 

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