Suncor Energy reports 2010 second quarter results- strategy on track
7/29/2010CALGARY, ALBERTA--(Marketwire - July 29, 2010) - Suncor Energy Inc. today reported second quarter 2010 net earnings of $480 million ($0.31 per common share), compared to a net loss of $51 million ($0.06 per common share) for the second quarter of 2009. Operating earnings in the second quarter of 2010 were $781 million ($0.50 per common share), compared to $38 million ($0.04 per common share) in the second quarter of 2009.
The increase in operating earnings was primarily due to additional upstream production as a result of the August 2009 merger with Petro-Canada, as well as higher benchmark prices in the second quarter of 2010, compared to the second quarter of 2009. This was partially offset by the stronger Canadian dollar, relative to the U.S. dollar.
Cash flow from operations was $1.758 billion ($1.13 per common share) in the second quarter of 2010, compared to $295 million ($0.31 per common share) in the second quarter of 2009. The increase in cash flow from operations was primarily due to production volumes added as a result of the merger as well as higher realized prices.
Suncor's total upstream production during the second quarter of 2010 averaged 633,900 boe per day, compared to 336,100 boe per day in the second quarter of 2009, primarily reflecting additional upstream production resulting from the merger.
Oil Sands production (excluding proportionate production share from the Syncrude joint venture) contributed an average 295,500 barrels per day (bpd) in the second quarter of 2010, compared to second quarter 2009 production of 301,000 bpd. Second quarter 2010 production was impacted by planned maintenance at one of two oil sands upgraders in May and June.
"Prior to heading into planned maintenance this quarter, we achieved record monthly oil sands average production of 333,000 barrels per day in April," said Rick George, president and chief executive officer. "Even with the impacts of maintenance, we had one of our best quarters for oil sands production on record. Although we have some planned maintenance remaining, we're targeting a strong second half to the year."
Cash operating costs for Suncor's oil sands operations (excluding Syncrude) increased to $35.90 per barrel in the second quarter of 2010, compared to $31.30 per barrel during the second quarter of 2009. The increase in cash operating costs per barrel was primarily due to the inclusion of MacKay River costs as a result of the merger, higher product purchase costs and additional maintenance in the second quarter of 2010 compared to the second quarter of 2009.
Suncor's proportionate production share from the Syncrude joint venture contributed an average of 38,900 bpd of production during the second quarter of 2010.
Production from the Natural Gas business averaged 586 mmcfe per day in the second quarter of 2010, compared to 211 mmcfe per day during the second quarter of 2009, primarily due to the addition of Petro-Canada natural gas assets.
Suncor's International and Offshore business contributed an average of 201,900 boe per day of production in the second quarter of 2010. Production rates were impacted by planned maintenance at the company's North Sea operations and by production quotas in Libya. These impacts were partially offset by strong production in East Coast Canada operations and new production from the Ebla gas project in Syria, which was commissioned in April.
Total sales of refined petroleum products from the Refining and Marketing business averaged 89,000 cubic metres per day during the second quarter of 2010 compared to 33,900 cubic metres per day in the second quarter of 2009, reflecting additional sales volumes from the merger with Petro-Canada.
Strategy and Operational Update
Construction continued on the Firebag Stage 3 in situ oil sands project. The planned $3.6 billion expansion is expected to achieve first production during the second quarter of 2011, with volumes ramping up over an estimated 18 to 24 month period toward a planned production capacity of approximately 62,500 bpd of bitumen.
Spending on engineering for Firebag Stage 4 is expected to continue in 2010 with a target of first bitumen production in the fourth quarter of 2012. Construction of the project, which also has a planned production capacity of 62,500 bpd of bitumen, remains subject to Board of Directors approval.
To support current and future mine reclamation, Suncor applied for and received regulatory approval for a new tailings management plan using the company's proprietary TROTM tailings management process. Capital spending for large scale implementation of TROTM remains subject to Board of Directors approval.
In Suncor's renewable energy business, construction continued on expansion of the company's St. Clair Ethanol Plant. Work currently underway is expected to double the plant's production capacity, with completion targeted toward the end of 2010. The renewable energy business also received regulatory approval for construction of a new wind power project, Suncor's fifth, in southern Alberta.
As part of its strategic business alignment, Suncor continued with plans to divest of a number of non-core assets. In the second quarter, Suncor closed the sale of assets known as Rosevear and Pine Creek for net proceeds of $229 million and signed another agreement to sell non-core natural gas properties in Alberta for gross proceeds of $285 million, before closing adjustments. Suncor also reached an agreement to sell all of its shares in Petro-Canada Netherlands B.V. for gross proceeds of €445 million, before closing adjustments. It is anticipated that this sale will close in the third quarter of 2010. The sales that have not closed are subject to the satisfaction of customary closing conditions.
To date, Suncor has disposed of, or reached agreements to dispose of, assets for aggregate consideration of approximately $2.4 billion prior to closing adjustments. Additional assets planned for divestiture include certain natural gas assets in Western Canada as well as North Sea assets in the Scott/Telford and Triton areas.
"One year out from our historic merger with Petro-Canada, we're very pleased with the progress we've seen," said George. "Sales of non-core assets have proceeded well and our growth plans are on track. Every part of this business, from our core oil sands operations and conventional and offshore oil and gas production to our downstream refining and marketing division is delivering on strategy."
Outlook
Suncor's outlook provides management's targets for 2010 in certain key areas of the company's business. Users of this forward-looking information are cautioned that actual results may vary materially from the targets disclosed. Readers are cautioned against placing undue reliance on this outlook.
The following operational outlook for 2010 has been revised from the operational outlook previously issued by management on May 4, 2010. The revisions are principally as follows:
the Syncrude production outlook has been adjusted to 36,000 bpd (+/and#8722;5%) from 38,000 bpd (+/and#8722;5%) primarily due to operational issues at the Syncrude facilities in the second quarter of 2010;
the Natural Gas production outlook related to remaining targeted divestitures has been adjusted to 140 mmcfe per day from 180 mmcfe per day as a result of completed dispositions of our Rosevear and Pine Creek properties during the second quarter of 2010 and the change in the assets targeted for potential sale; and
the East Coast Canada production outlook has been adjusted to 65,000 bpd (+/and#8722;5%) from 60,000 bpd (+/and#8722;5%) primarily as a result of improved performance to date.
These changes to the operational outlook have a corresponding impact on the total production outlook which has been adjusted to 610,000 boe per day (+/and#8722;5%) from 608,000 boe per day (+/and#8722;5%) and total production related to remaining targeted divestitures, which has been adjusted to 63,000 boe per day from 70,000 boe per day.
Risk Factors Affecting Performance
Factors that could potentially impact Suncor's operational outlook for 2010 include, but are not limited to:
Bitumen supply. Ore grade quality, unplanned mine equipment and extraction plant maintenance, tailings storage and in situ reservoir performance could impact 2010 production targets.
Performance of recently commissioned facilities. Production rates while new equipment is being lined out are difficult to predict and can be negatively impacted by unplanned maintenance.
Unplanned maintenance. Production estimates could be negatively impacted if unplanned work is required at any of our mining, production, upgrading, refining, pipeline, or offshore assets.
Planned turnarounds. Production estimates could be negatively impacted if planned turnarounds are not effectively executed.
Planned divestitures. Our inability to execute planned divestitures could impact our debt management and capital expenditure plans.
Commodity prices. Significant declines in natural gas commodity prices could result in the shut-in of some of our natural gas production.
Foreign operations. Suncor's foreign operations and related assets are subject to a number of political, economic and socio-economic risks. Suncor's operations in Libya may be constrained by production quotas.
