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Suncor (SU) Beats on Q3 Earnings, Tightens Production View

Zacks Equity Research

Last week, Suncor Energy SU announced third-quarter 2019 results wherein its earnings surpassed estimates. The company’s operating earnings per share of 55 cents edged past the Zacks Consensus Estimate of 54 cents on the back of higher output contribution from Fort Hills and Syncrude operations.

However, the bottom line declined 24.6% from the prior-year figure of 73 cents per share. The weaker year-over-year results can be attributed to unfavourable business environment causing low crude oil price realization along with increased operating and transport expenses.

Moreover, quarterly operating revenues of $7,500 million lagged the Zacks Consensus Estimate of $8,021 million. The top line also decreased 9.767% from $8,312 million in the year-ago quarter.

Upstream

Total upstream production in the reported quarter was 762,300 barrels of oil equivalent per day (Boe/d), up 2.5% from the prior-year level of 743,800 Boe/d. This rise in output was backed by robust operations in Fort Hills, Hebron and Syncrude projects, partly offset by mandatory production cuts implemented by the Alberta government. However, this upstream unit recorded operating earnings of C$676 million vis-a-vis C$984 million in the prior-year quarter, thanks to production curtailments.

Notably, Fort Hills production came in at 85,500 barrels per day (Bbl/d) in the quarter, higher than 69,400 Bbl/d recorded in the year-ago period owing to ramped-up operations.

Production from Syncrude operations increased to 162,300 Bbl/d from 106,200 Bbl/d in the year-ago quarter. Notably, the planned maintenance in the reported quarter had lesser impact on production than the unplanned maintenance in the year-ago quarter. In the quarter under review, upgrader reliability at Syncrude was 80%, higher than the prior-year’s 52%.

Oil Sands operations volume was 422,200 Bbl/d compared with 476,100 Bbl/d in the year-earlier quarter. Upgrader utilization declined to 91% from 95% in the comparable quarter last year. Operating costs per barrel increased to C$26.60 in the quarter under review from C$22 in the corresponding period of 2018.

Suncor Energy’s Exploration and Production segment (consisting of International, Offshore and Natural Gas segments) produced 92,300 Boe/d compared with 92,100 Boe/d in the prior-year quarter. Results were impacted by higher output levels from Hebron and Oda, which began production earlier this year. The same was but partially offset by an unplanned outage at Hibernia, which was resolved by September end.

Downstream

Operating earnings from the downstream unit decreased to C$668 million from the year-ago figure of C$932 million due to lower refining margins. Suncor Energy recorded better refined product sales in the quarter under review, which increased to 572,000 Bbl/d from the prior-year level of 565,500 Bbl/d on higher refinery throughput and utilization levels. Refining margin was C$28.35 a barrel compared with C$34.45 a year ago.

Crude throughput came in at 463,700 Bbl/d in the third quarter compared with 457,200 Bbl/d in the year-ago period. Also, refinery utilization rose to 100% from 99% a year earlier.

Expenses

Total expenses in the reported quarter increased to C$8,424 million from C$8,398 million in the year-ago period. The rise in total expenses is mainly attributed to higher refinery maintenance, financing and business development costs.

Financials

Importantly, cash flow from operating activities summed C$2,675 million in the third quarter, down 14.8% from the prior-year figure of C$3,139 million. The company incurred capital expenditure of C$1,487 million in the quarter under review.

As of Sep 30, Suncor Energy had cash and cash equivalents of C$2,089 million and total long-term debt of C$13,098 million. Its total debt-to-capitalization ratio was approximately 22.5%.

Suncor Energy returned C$650 million to its shareholders through dividends and bought back C$19.2 million of outstanding shares in third-quarter 2019.

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

Guidance

Suncor tapered its 2019 total production guidance from 780,000-820,000 Boe/d to 780,000-790,000 Boe/d. Production from oil sands is estimated within 410,000-425,000 bbls/d. Moreover, production from E&P production is expected in the 105,000-110,000 bbls/d bracket. Fort Hills’ output is expected within 85,000-90,000 bbls/d.

Oil Sands operations cash operating costs per barrel are projected between $27 and $28 on account of mandatory production curtailment.

Zacks Rank & Key Picks

Nabors has a Zacks Rank #3 (Hold). Some better-ranked players in the energy space are Subsea 7 SA, Inc. SUBCY, Phillips 66 PSX and Sunoco LP SUN, each holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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