Canada’s biggest energy firm and the largest oil sands outfit, Suncor Energy Inc. (SU), reported lower-than-expected second-quarter 2014 results, owing to higher operating cost and lower product sales.
Operating earnings per share, excluding certain items, came in at 77 Canadian cents (71 US cents), which failed to beat the Zacks Consensus Estimate of 89 US cents. However, comparing year over year, the bottom line improved 24.2% from 62 Canadian cents per share, due to higher realization of upstream price.
In the reported quarter, total revenue of C$10.65 billion (US$9.76 billion) increased 9.6% from the year-ago level, owing to significant higher oil sand production volumes. However, the top line failed to beat the Zacks Consensus Estimate of US$10 billion.
Quarterly operating earnings of C$1.1 billion were above C$0.9 billion recorded a year ago. Moreover, cash flow from operations increased to C$2.4 billion from C$2.3 billion in the second quarter of 2013.
Upstream production during the quarter averaged 518,400 barrels of oil equivalent per day (BOE/d), up from the second-quarter 2013 level of 500,100 BOE/d.
Oil sands volume was 378,800 barrels per day (Bbl/d), higher than 276,600 Bbl/d recorded in the year-ago quarter. Comparatively lower maintenance work – planned and unplanned – led to the improvement. The results were also supported by higher production volumes from Firebag.
Production from Syncrude operations, however, contracted 25.9% year over year to 24,300 Bbl/d in the quarter.
Suncor’s Exploration and Production segment (consisting of International and Offshore and Natural Gas segments) produced 115,300 BOE/d, lower than 190,700 BOE/d in the prior-year quarter. Divestment of Suncor’s conventional gas operations along with minimal output in Libya – owing to political disturbances – hampered the output.
The Refining and Marketing segment averaged 391,100 Bbls/d of refinery crude, down from 414,500 bbls/d in the year-ago quarter. The refinery utilization came in at 85%, lower than the year-ago quarter level primarily due to planned maintenance work at the Edmonton and Montreal refineries during the quarter.
The company’s total product sales of 515,900 Bbls/d decreased 3.1% from the prior-year quarter.
Suncor reported operating cost of C$2.5 billion, 9% higher than the year-ago quarter level.
Separately, Suncor declared a quarterly cash dividend of 28 Canadian cents, representing a sequential increase of 21.7%. The new dividend will likely be paid on Sep 25, 2014, to shareholders of record as of Sep 4.
Balance Sheet & Capital Expenditure
As of Jun 30, 2014, Suncor had cash and cash equivalents of C$4.9 billion and total long-term debt (including current portions) of C$10.7 billion. The debt-to-capitalization ratio was approximately 22%. Also, the company incurred C$1.7 billion in capital expenditure in the quarter.
Suncor lowered its 2014 capital spending guidance to C$6.8 billion from C$7.8 billion.
Suncor currently carries 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.
Meanwhile, one can look at better-ranked players in the energy sector like Cameron International Corporation (CAM), WPX Energy Inc. (WPX) and Clayton Williams Energy Inc. (CWEI). All these stocks sport a Zacks Rank #1 (Strong Buy).