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What Does Suncor's (SU) 2019 Capital Expenditure Plan Reveal?

Suncor Energy Inc. SU recently announced its corporate guidance and estimated capital budget in the range of C$4,900-C$5,600 million for 2019, higher than C$4,500-C$5,000 million guided for 2018. The integrated energy player used C$4,131 million for capital and exploration in the first nine months of 2018. Notably, 63% of the company’s total capital budget for 2019 will be directed toward planned sustaining and maintenance activities, while the rest can be invested in value creating projects with low capital intensity.

Suncor‘s capital expenditure program incorporates its initiatives to expand the infrastructure of midstream logistics, improve margins and reduce cost over the 2020-2023 time period. These are expected to positively impact the company’s operations, enabling it to increase dividends, buy back shares and further strengthen its balance sheet, which currently has a debt-to-capitalization of 22.6%.

Analyzing Suncor's 2019 Capital Budget:

Upstream

Suncor intends to allot C$3,050-C$3,400 million for upstream oil sands expenditures, and C$1,000-C$1,200 million for upstream exploration and production. This leads to a total upstream capital budget of C$4,050-C$4,600 million compared with 2018 guided range of C$3,650-C$4,050 million. The company spent C$3,544 million in the first nine months of 2018.

Production: Production from total upstream operations for full-year 2019 is estimated at 780,000-820,000 barrels of oil equivalent per day (Boe/d), reflecting a 10% rise from the 2018 level. Output from oil sands operations is expected in the range of 410,000-440,000 barrels per day (BPD). Suncor’s production from its Fort Hills stake is expected in the range of 85,000-95,000 BPD, while the same from Syncrude is estimated at 160,000-180,000 BPD. Moreover, exploration and production for full-year 2019 is expected within 105,000-115,000 Boe/d.

Notably, the government of Alberta has decided to curb output from the start of 2019, in a bid to improve prices and reduce differentials between Western Canadian Select and U.S. benchmarks. Suncor’s output guidance for 2019 includes the effects of Alberta’s decision. Its investment in Alberta is expected to fall on a year-over-year basis.

Cost: The company expects its oil sands operations cash operating cost in the range of C$24-C$26.50 per barrel versus C$25.50 in the first nine months of 2018. The upper limit of the guidance is higher due to expected reduction in output owing to production curtailment.

Downstream

The company plans to allocate C$700-C$775 million in its downstream activities for 2019, lower than its 2018 guided range of C$800-C$850 million. Notably, in the first nine months of 2018, the company spent C$666 million in refining and marketing activities, which comprise downstream activities. Suncor, a Zacks Rank #3 (Hold) company, expects its refinery throughput for 2019 at 430,000-450,000 barrels per day, with refinery utilization estimated within 93-97%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other Companies That Issued 2019 Budget

Some other important companies in the energy sector that revealed their 2019 capital expenditure budget include Canadian Natural Resources Limited CNQ, Chevron Corporation CVX and Pembina Pipeline Corporation PBA.

Reeling under discounted crude prices and pipeline crisis, the Canadian energy sector is struggling to find a path to growth. Amid this crisis, Canadian Natural slashed its capital budget by C$1 billion.

Chevron has pegged its 2019 capital and exploratory budget at $20 billion, which marks the first upward revision of the same in four years.

Pipeline operator Pembina unveiled its 2019 capital expenditure budget and earnings guidance, hiking its spending levels to C$1.6 billion for 2019 from C$1.3 billion in 2018.

Price Performance

Calgary, Canada-based Suncor has lost 13.9% in the past year compared with 13.8% collective decline of its industry.

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Canadian Natural Resources Limited (CNQ) : Free Stock Analysis Report
 
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