Bloomberg News

Suncor Profit Beats Estimates as Production Costs Fall

July 25, 2012

Suncor Energy Inc. (SU), Canada’s largest energy company by market value, reported second-quarter profit that beat analysts’ estimates as its oil-sands production costs fell.

Excluding one-time expenses, per-share profit exceeded the 74-cent average of 17 analysts’ estimates compiled by Bloomberg. Net income declined to C$333 million ($326 million), or 20 cents a share, from C$562 million, or 31 cents, a year earlier as oil prices dropped, the Calgary-based company said in a statement yesterday.

Cash operating costs for its oil-sands projects fell to C$39 a barrel in the quarter, a 19 percent decrease from the same period a year earlier. The company cited higher output, less maintenance and a drop in natural-gas costs for the decline. Sales rose 4.2 percent to C$9.72 billion.

“On the cost side, we’re seeing consistently that the best assets, like those at Suncor and Cenovus, help control costs over time,” said Chris Theal, chief executive officer of Kootenay Capital Management Corp. in Calgary, which owns shares in both companies.

Suncor rose 2.1 percent to C$30.39 at 12:59 p.m. in Toronto. The stock, which has gained 3.5 percent this year, has 20 buy and three hold ratings from analysts.

Output rose 18 percent in the quarter to the equivalent of 542,400 barrels a day from 460,000 a year earlier, the company said. Average daily oil-sands production, excluding its stake in Syncrude Canada Ltd., climbed to 309,200 barrels a day from 243,400 barrels a year earlier.

Libyan Recovery

Suncor narrowed the range of its 2012 daily average production forecast to the equivalent of 540,000 barrels to 580,000 barrels. International output was raised to as much as 85,000 barrels, from a 75,000-barrel estimate on April 30.

Suncor may consider delaying development of some of its oil-sands projects with partner Total SA (FP) as the companies review their profitability, Chief Executive Officer Steve Williams said in a conference call with analysts today. The company formed an alliance in 2010 with France’s Total to develop the Fort Hills, Joslyn and Voyageur projects in Alberta.

“In principle, there is the opportunity to not progress those projects,” he said.

Libya produced an average of 42,700 barrels a day during the quarter, compared with no production a year earlier while the nation was undergoing a civil war. International output rose 98 percent in the quarter, even with no production from Syria, which averaged the equivalent of 18,100 barrels a day in the second quarter of 2011.

Suncor recorded a C$694 million one-time cost in the period due to political unrest in Syria. The company suspended its Syrian operations, which supplies about 10 percent of the nation’s gas, in December.

Refinery Margin

Gas prices in North America and the permanent shuttering of a processing plant prompted the company to halt the equivalent of about 23 million cubic feet of daily production in certain fields in Canada.

Suncor earned more for processing heavy oil sands into fuels and other products as the price of Canadian crude fell during the quarter. Profit from refining and marketing rose 59 percent to C$499 million.

“We saw crude prices drop by $25 per barrel in the quarter,” Williams said. “Markets reacted to a very uncertain macroeconomic situation.”

Suncor said 96 percent of its production is exposed to global oil prices, with the remaining 4 percent based on West Texas Intermediate, a U.S. benchmark. The company processes most of its production at its four North American refineries.

To contact the reporter on this story: Jeremy van Loon in Calgary at jvanloon@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net


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