Suncor Energy reports 2012 second quarter results7/25/2012
CALGARY, ALBERTA, Jul 24, 2012 (MARKETWIRE via COMTEX) -- All financial information, unless otherwise noted, is unaudited, in Canadian dollars, and has been prepared in accordance with Canadian generally accepted accounting principles (GAAP). Certain financial measures in this news release - namely operating earnings, cash flow from operations, cash operating costs for Oil Sands and return on capital employed (ROCE) - are not prescribed by GAAP. See the Operating Earnings Reconciliation and Non-GAAP Financial Measures section of this news release. Production volumes are presented on a working-interest basis, before royalties, unless otherwise noted.
Suncor Energy Inc. recorded second quarter operating earnings of $1.258 billion ($0.81 per common share), compared to $980 million ($0.62 per common share) in the second quarter of 2011. The increase in operating earnings compared to the second quarter of 2011 was due primarily to increased production volumes in our upstream businesses, combined with increased refinery margins and throughputs in the downstream, partially offset by lower upstream price realizations.
Cash flow from operations was $2.344 billion ($1.51 per common share) in the second quarter of 2012, compared to $1.982 billion ($1.26 per common share) in the second quarter of 2011. The increase in cash flow from operations was primarily due to the same factors affecting operating earnings.
Net earnings were $333 million ($0.21 per common share) in the second quarter of 2012, compared to net earnings of $562 million ($0.36 per common share) for the second quarter of 2011. Return on capital employed for the twelve months ended June 30, 2012 was 14.3%, compared to 11.1% for the twelve months ended June 30, 2011.
Suncor's total upstream production during the second quarter of 2012 averaged 542,400 barrels of oil equivalent per day (boe/d), compared to 460,000 boe/d during the second quarter of 2011.
Oil Sands production (excluding Suncor's proportionate share of production from the Syncrude joint venture) contributed an average of 309,200 barrels per day (bbls/d) in the second quarter of 2012, compared with second quarter 2011 production of 243,400 bbls/d. The increase in Oil Sands production was primarily due to the planned maintenance event at Upgrader 2 in the same quarter last year and the continued ramp up of production from Firebag in 2012, partially offset by an unplanned outage at Upgrader 2 in the first quarter of 2012 that extended into the second quarter.
The ramp up of production from new well pads at Firebag is proceeding in line with expectations. Bitumen production from the company's Firebag operations averaged 95,800 bbls/d in the second quarter of 2012, compared to 83,600 bbls/d in the first quarter of 2012 and 56,400 bbls/d in the second quarter of 2011. Production was also higher due to output from nine infill wells, which was processed at new central processing facilities that have excess capacity during the Stage 3 ramp up.
Cash operating costs for Oil Sands (excluding Syncrude) decreased to $39.00 per barrel in the second quarter of 2012 and $38.55 per barrel for the first six months of 2012, compared to $48.40 per barrel in the second quarter of 2011 and $41.05 for the first six months of 2011. The decrease in cash operating costs per barrel is primarily a reflection of higher production volumes, lower maintenance and natural gas energy costs, and efficiencies gained by extending the mine into the North Steepbank area.
"The ramp up in production from Firebag and North Steepbank clearly demonstrates the progress we are making on operational excellence and cost management," said Steve Williams, president and chief executive officer. "Our goal is to steadily increase efficiency, reliability and production."
Suncor's proportionate share of production from the Syncrude joint venture contributed an average of 28,600 bbls/d of production during the second quarter of 2012, compared to 33,800 bbls/d in the same quarter of 2011. The decrease was primarily due to planned maintenance in 2012.
The Exploration and Production segment contributed 204,600 boe/d of production in the second quarter of 2012, compared to second quarter 2011 production of 182,800 boe/d. The increase was primarily due to the restart of operations in Libya and improved reliability at Buzzard, partially offset by the ongoing suspension of the company's operations in Syria as a result of political unrest and international sanctions and the start of off-station maintenance programs for Terra Nova and White Rose.
In the company's downstream Refining and Marketing segment, total refined product sales averaged 87,500 cubic metres per day during the second quarter of 2012, compared to 82,200 cubic metres per day in the second quarter of 2011. Refinery utilization averaged 94% in the second quarter of 2012, and refineries in Western North America ran at full capacity. During the second quarter of 2012, feedstock costs at Suncor's inland refineries decreased, reflecting lower overall crude prices and wider market discounts to West Texas Intermediate (WTI).
"Suncor's ability to deliver strong operating earnings and cash flow despite widening price discounts to WTI further illustrates the strength and value of our integrated model," said Williams. "This reduced exposure to market volatility coupled with exceptional performance from our Western North America refineries allowed Suncor to produce consistent financial results in the second quarter."
Strategy and Operational Update
Suncor continues to move forward on its growth strategy, focused on the Firebag Stage 4 expansion and projects in its Oil Sands Ventures business. In the second quarter, construction activities at Firebag Stage 4 proceeded according to plan. The company expects to begin steaming new well pads in the fourth quarter of 2012 and achieve initial production early in the first quarter of 2013. For the Voyageur upgrader, Fort Hills and Joslyn North projects, the company intends to present a development plan in 2013 for each of the projects to Suncor's Board of Directors for a sanctioning decision. The development of each of these projects is also subject to approval by the joint venture owners of the respective project.
Suncor also continued to advance other strategic capital projects. The company completed the tailings management (TRO(TM)) infrastructure project and commenced operations. Through the TRO(TM) process, fluid fine tailings are converted more rapidly into a solid landscape suitable for reclamation. Also in our Oil Sands business, the company is in the process of starting up the hydrotreating unit and hydrogen plant of the new Millennium Naphtha Unit (MNU), which is expected to be fully operational in the third quarter of 2012. The company expects that the MNU will stabilize secondary upgrading capacity and provide flexibility during maintenance activities for secondary upgrading units in future quarters.
"We continue to make steady progress on our capital projects," said Williams. "The progress of construction activities at the Firebag Stage 4 expansion, which is 90% complete, and the implementation of TRO(TM) are evidence of our disciplined approach to project execution. I'm particularly proud of our TRO(TM) accomplishment - this project marks another first for the oil sands mining industry and, as a result of this new technology and the company's capital investment to reconfigure its tailings operations, Suncor has cancelled plans for five additional tailings ponds."
In the company's East Coast Canada operations, the Canada-Newfoundland and Labrador Offshore Petroleum Board approved the Hebron Development Application. Suncor expects that project sanction decisions from the joint venture owners of the Hebron project should be finalized late in 2012 or early 2013. The estimated 21-week dockside maintenance program for the Terra Nova Floating Production, Storage and Offloading (FPSO) vessel commenced in June. The planned work includes the replacement of the FPSO water injection swivel and the replacement of subsea infrastructure to help remediate hydrogen sulphide issues. The estimated 18-week off-station maintenance program for the White Rose FPSO, primarily to address issues with the FPSO propulsion system, commenced in May. Both maintenance programs are currently on schedule.
In the company's offshore International operations, improved reliability from Buzzard resulted in production volumes of 57,900 boe/d for the second quarter of 2012. Offshore Norway, the second appraisal well for the Beta discovery did not encounter hydrocarbons. This well is part of an ongoing appraisal program that includes plans to acquire new seismic data and complete further appraisal drilling over 2013 and 2014.
In other International operations, the company has exited force majeure under its contractual obligations in Libya, including with respect to exploration activities. Suncor is currently assessing its ability to restart exploration activities in the second half of 2012. Suncor remains engaged with the National Oil Corporation and with its joint venture partner as production continues to be restored and stabilized. Production from Libya averaged 42,700 bbls/d during the second quarter of 2012.
In December 2011, the company declared force majeure under its contractual obligations in Syria due to political unrest and international sanctions affecting that country. As a result, the company has not recorded any production from Syria in 2012. The situation in Syria has not improved, and the company is not certain if or when it will be feasible to resume operations. Based on an assessment of expected future net cash flows over a range of possible outcomes, the company recorded after-tax impairment charges and write-offs of $694 million against its assets in Syria in the second quarter of 2012. After these adjustments, the carrying value of Suncor's net assets in Syria at June 30, 2012 was approximately $250 million.
In North America Onshore operations, production from certain fields in northeast British Columbia and southeast Alberta was shut in due to low natural gas prices and the permanent closure of a third-party processing plant. These fields represented incremental production of approximately 23 million cubic feet per day of natural gas equivalent in the second quarter of 2011.
Suncor continues its program to return value to shareholders. As at July 20, 2012, the company had returned $1.237 billion to shareholders in 2012, through $872 million in share repurchases and $365 million in dividends. The company is currently authorized to repurchase up to $1 billion of its common shares in 2012. The company's second quarter dividend increased 18% to $0.13 per common share from $0.11 per share in the first quarter of 2012.