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Suncor Energy (SU) Up 9.5% Despite Missing on Q3 Earnings

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·6 min read
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  • SU
  • FANG
  • EOG
  • COP

Shares of Suncor Energy SU have risen 9.5% since third-quarter 2021 earnings announcement on Oct 27.

Despite the company’s lower-than-anticipated earnings and revenue results, its stock has continued to rise. This was possibly as a result of the firm’s expectation to generate $450 million of additional annual cash flow by 2021, primarily through margin enhancements, such as the debottlenecking of the Firebag and Edmonton, trading efficiencies, lower reclamation expense and linking pipelines.

By dedicating more than 70% of its year-to-date earnings from operations to dividends and buybacks, Suncor Energy decreased its net debt position by more than $3 billion and returned above $2.6 billion to its shareholders in the form of dividends and buybacks. This might have further boosted investor confidence. The rise in price performance has also been led by soaring oil prices over the past few weeks.

Behind the Earnings Headlines

Suncor Energy reported third-quarter 2021 operating earnings per share of 56 cents, missing the Zacks Consensus Estimate of 58 cents. This underperformance is due to accelerated costs and expenses. However, the bottom line improved from the year-ago quarter’s earnings of 15 cents, attributable to ramped-up production in the upstream segment and improved refined product sales.

Quarterly operating revenues of $8.11 billion lagged the Zacks Consensus Estimate of $9.1 billion. However, the top line rose 67.4% from $4.85 billion in the year-ago quarter.

Suncor Energy Inc. Price, Consensus and EPS Surprise

Suncor Energy  Inc. Price, Consensus and EPS Surprise
Suncor Energy Inc. Price, Consensus and EPS Surprise

Suncor Energy Inc. price-consensus-eps-surprise-chart | Suncor Energy Inc. Quote

Upstream

Total upstream production in the reported quarter was 698,600 barrels of oil equivalent per day (Boe/d), up 13.4% from the prior-year level of 616,200 Boe/d. This rise in output was owing to better Syncrude production and a robust performance from the company’s In Situ assets. Evidently, this upstream unit recorded operating earnings of C$407 million compared with C$25 million in the prior-year quarter.

Output from Syncrude operations scaled up to 190,200 barrels per day (BPD) from 161,100 BPD a year earlier.

Fort Hills production came in at 50,800 BPD in the quarter, higher than 42,600 BPD registered in the year-ago period.

Oil Sands operations volume was 381,700 BPD compared with 325,600 BPD in the year-earlier quarter. Operating costs per barrel decreased to C$29.05 in the quarter under review from C$31.75 in the corresponding period of 2020. Upgrader utilization increased to 91% from 78% in the comparable quarter of last year.

Suncor Energy’s Exploration and Production segment (consisting of International, Offshore and Natural Gas segments) produced 93,500 Boe/d compared with 97,200 Boe/d in the prior-year quarter. Results were affected by the natural production declines.

Downstream

Operating earnings from the downstream unit rose to C$658 million from the year-ago figure of C$356 million, attributable to expanded demand, improved margins and strong refined product sales. Suncor Energy recorded impressive refined product sales in the quarter under consideration, which increased to 551,500 BPD from the prior-year level of 534,000 BPD.

Crude throughput came in at 460,300 BPD in the third quarter compared with 399,700 BPD in the year-ago period. Also, refinery utilization was 70%.

Expenses

Total expenses in the reported quarter climbed to C$8.9 billion from C$6.7 billion in the year-earlier period. This downtrend is mainly caused by higher costs related to the purchases of crude oil and products as well as a rise in operating, selling and general costs along with increased transportation and financing expenses.

Financials

Cash flow from operating activities summed C$4.72 billion in the third quarter, up from the prior-year figure of C$1.25 billion. The company incurred a capital expenditure worth C$1.18 billion in the quarter under discussion.

As of Sep 30, 2021, Suncor Energy had cash and cash equivalents worth C$2.31 billion and a total long-term debt of C$14 billion. Its total debt to total capital was 27.8%.

During the quarter under review, the company distributed $309 million of dividends.

Guidance

For the full year, this Alberta-based integrated player reiterates its Fort Hills production guidance of 45,000-55,000 BPD to reflect extra work necessary to preserve slope integrity on the mine's south side. As a result, the cash operating expenses per barrel at Fort Hills are estimated in the $37-$42 range.

Upstream E&P capital expenditure is forecast in the $300-$400 million range while Downstream capex view is anticipated in the $750-$850 million band.

Final Words

After suffering a frightening crash in 2020, the energy space has been uphill since the start of this year, courtesy of surging demand from the economic reopening. The rally in oil and natural gas prices allowed the operators to deliver a solid financial performance. In particular, upstream players like EOG Resources EOG, Diamondback Energy FANG and ConocoPhillips COP turned in a better-than-expected third-quarter bottom-line numbers.

ConocoPhillips reported third-quarter 2021 adjusted earnings per share of $1.77, comfortably beating the Zacks Consensus Estimate of $1.53. This outperformance is led by increased production volumes owing to the Concho acquisition and rising realized commodity prices.

Based in Houston, TX, this one of the world’s largest independent oil and gas producers’ capital expenditures and investments totaled $1.3 billion, and dividend payments grossed $579 million. ConocoPhillips’ net cash provided by operating activities was recorded at $4.8 billion, up from the year-ago figure of $868 million. The presently Zacks Rank #1 (Strong Buy) company generated a free cash flow of $2.8 billion in the third quarter.

You can see the complete list of today’s Zacks #1 Rank stocks here.

EOG Resources reported third-quarter 2021 adjusted earnings per share of $2.16, beating the Zacks Consensus Estimate of $2.01. Strong earnings were driven by increased production volumes and higher realization of commodity prices.

The company announced a quarterly dividend of 75 cents per share, indicating an 82% increase from the previous level. The dividend will be paid out on Jan 28, 2022 to its shareholders of record as of Jan 14, 2022. EOG also declared a special dividend of $2 per share. Moreover, its board of directors updated its share repurchase authorization to $5 billion.

Diamondback Energy reported third-quarter 2021 adjusted earnings of $2.94 per share, which surpassed the Zacks Consensus Estimate of $2.81 and also the year-ago quarter’s earnings of 62 cents. The company’s bottom line was aided by better-than-expected production.

Diamondback’s board of directors declared a dividend of 50 cents per share for the third quarter. This signifies an 11.1% hike in its quarterly payout from the previous level of 45 cents. The amount will be paid out on Nov 18, 2021 to its shareholders of record as of Nov 11. It also generated a free cash flow of $740 million in the third quarter.


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