Unless otherwise noted, all financial figures are unaudited,
presented in Canadian dollars (Cdn$), and have been prepared in
accordance with International Financial Reporting Standards,
specifically International Accounting Standard 34 Interim Financial
Reporting as issued by the International Accounting Standards
Board. Production volumes are presented on a working interest
basis, before royalties, except for Libya, which is on an
entitlement basis. Certain financial measures referred to in this
news release (funds from operations, operating earnings, Oil Sands
operations cash operating costs, Fort Hills cash operating costs
and Syncrude cash operating costs) are not prescribed by Canadian
generally accepted accounting principles (GAAP). See the Non-GAAP
Financial Measures section of this news release. References to Oil
Sands operations exclude Suncor’s interests in Fort Hills and
Syncrude.
“Suncor generated funds from operations of $2 billion in the
fourth quarter as our integrated downstream business and market
access helped to mitigate upstream crude price volatility,
including the further widening of the differentials for Canadian
crude,” said Steve Williams, chief executive officer. “We continued
to return value to our shareholders through nearly
$1.2 billion in share repurchases and $574 million in
dividends paid during the quarter.”
• |
Funds from operations
were $2.007 billion ($1.26 per common share) in the fourth
quarter of 2018, compared to $3.016 billion ($1.83 per common
share) in the prior year quarter. |
|
|
• |
Cash flow
provided by operating activities, which includes changes in
non‑cash working capital, was $3.040 billion ($1.90 per common
share), compared to $2.755 billion ($1.67 per common share) in
the prior year quarter. |
|
|
• |
Operating
earnings were $580 million ($0.36 per common share) and the
company had a net loss of $280 million ($0.18 per common
share) in the fourth quarter of 2018, compared to operating
earnings of $1.310 billion ($0.79 per common share) and net
earnings of $1.382 billion ($0.84 per common share) in the
prior year quarter. |
|
|
• |
Total Oil
Sands production attained a new quarterly record of
740,800 barrels per day (bbls/d), close to 90,000 bbls/d
ahead of the previous record, primarily as a result of achieving
94% plant utilization at Fort Hills and record production
at Syncrude. |
|
|
• |
Refining
and Marketing (R&M) delivered record quarterly crude throughput
of 467,900 bbls/d, which represents refinery utilization
of 101%. |
|
|
• |
Hebron
production in the fourth quarter averaged 15,700 bbls/d, net
to the company, and is continuing to ramp up following the
completion of the fourth production well during
the quarter. |
|
|
• |
The company
distributed $574 million in dividends to shareholders and
repurchased an additional $1.166 billion of shares in the
fourth quarter of 2018. The existing $3.0 billion share
repurchase program is expected to be completed by the end of
February 2019. |
|
|
• |
Subsequent
to the end of the quarter, Suncor’s Board of Directors
(the Board) approved a quarterly dividend of $0.42 per share,
an increase of 17%, and also approved a further share repurchase
program of up to $2.0 billion. |
Financial Results
Operating Earnings
Suncor’s fourth quarter 2018 operating earnings were
$580 million ($0.36 per common share), compared to
$1.310 billion ($0.79 per common share) in the prior year
quarter. The decrease was primarily a result of unfavourable
western Canadian crude oil differentials, including a substantial
widening of synthetic crude oil (SCO) differentials, which resulted
in the following:
• |
A decrease in Oil Sands
price realizations, partially offset by improved refining
margins; and |
|
|
•
|
An
unfavourable first‑in, first‑out (FIFO) inventory valuation
adjustment in R&M on declining feedstock costs, partially
offset by a realization of intersegment profit on inventory in the
Corporate, Energy Trading and Eliminations segment. |
|
|
Other factors reducing operating earnings included the addition
of operating and transportation costs for new production from
growth projects and acquisitions, a decrease in Oil Sands
operations SCO production, lower overall Exploration and Production
(E&P) sales volumes, and a decrease in the capitalization of
borrowing costs. These factors were partially offset by a recovery
of share‑based compensation costs (compared to an expense in the
prior year quarter) and increased overall upstream production,
driven by 94% plant utilization at Fort Hills, record production at
Syncrude and the continued ramp up of operations
at Hebron.
Net (Loss) Earnings
The net loss was $280 million ($0.18 per common share) in
the fourth quarter of 2018, compared to net earnings of
$1.382 billion ($0.84 per common share) in the prior year
quarter. In addition to the factors explained in operating earnings
above, net earnings for the fourth quarter of 2018 included a
$637 million unrealized after‑tax foreign exchange loss on the
revaluation of United States (U.S.) dollar denominated
debt, as well as a non‑cash impairment loss on one of the company’s
equity investments. Net earnings in the prior year quarter included
a net $124 million deferred income tax recovery related to a
decrease in the U.S. corporate tax rate from 35% to 21%, an
unrealized after‑tax foreign exchange loss of $91 million on
the revaluation of U.S. dollar denominated debt, after‑tax
property damage insurance proceeds of $55 million, an
after‑tax loss of $18 million for early repayment of debt and
a net after‑tax gain of $2 million on interest rate swaps
associated with debt issued in the fourth quarter of 2017.
Funds From Operations and Cash Flow Provided By
Operating Activities
Funds from operations were $2.007 billion ($1.26 per common
share) in the fourth quarter of 2018, compared to
$3.016 billion ($1.83 per common share) in the fourth quarter
of 2017, and were influenced by the same factors impacting
operating earnings noted above, excluding the recovery of non‑cash
share‑based compensation, as well as unrealized gains on crude
optimization activities.
Cash flow provided by operating activities was
$3.040 billion ($1.90 per common share) for the fourth quarter
of 2018, compared to $2.755 billion ($1.67 per common share)
for the fourth quarter of 2017, with changes in non‑cash working
capital representing a source of cash to the company in the fourth
quarter of 2018, as compared to a use of cash in the prior year
period. The source of cash in the company’s non‑cash working
capital balances was primarily due to the declining crude price
environment in the fourth quarter and the associated decrease in
accounts receivable balances, as well as the decline in refinery
inventory value as the company replaced crude feedstock inventories
purchased in the prior period with less expensive crude.
Operating Results
Suncor’s total upstream production represents a new quarterly
record at 831,000 barrels of oil equivalent per day (boe/d)
during the fourth quarter of 2018, compared to 736,400 boe/d
in the prior year quarter, with the increase primarily due to the
addition of Fort Hills production, improved reliability and an
additional working interest at Syncrude, and the continued ramp up
of operations at Hebron.
“Fort Hills achieved plant utilization of 94% for the quarter,
exceeding our accelerated target of 90%, and production from
Syncrude was strong, with the assets attaining a new quarterly
record,” said Mark Little, president and chief operating officer.
“Our refining assets continue to outperform due to continued
reliability, achieving a new quarterly throughput record and
allowing us to maximize the impact of strong refining margins.”
Oil Sands operations production was 432,700 bbls/d in the
fourth quarter of 2018, compared to 446,800 bbls/d in the
prior year quarter. The decrease was primarily due to lower SCO
volumes as a result of planned and unplanned maintenance at
Upgrader 2, partially offset by an increased volume of
non‑upgraded bitumen from the company’s In Situ properties, with
Firebag and MacKay River continuing to achieve solid reliability.
Planned maintenance at Upgrader 2, which commenced in the
third quarter of 2018, was completed during the fourth quarter and
the unplanned maintenance was resolved by the end of the quarter.
Upgrader utilization in the fourth quarter of 2018 was 79%,
compared to 93% in the prior year period, as a result of the
maintenance discussed above.
Oil Sands operations cash operating costs per barrel were $24.50
in the fourth quarter of 2018 and were comparable to the prior year
period of $24.20, with lower overall production being offset by
lower operating, selling and general expense, after adjusting for
non‑cash items.
Suncor’s share of production from Fort Hills averaged
98,500 bbls/d for the fourth quarter of 2018, which represents
94% utilization. As a result of the increase in production, Fort
Hills cash operating costs per barrel decreased to $24.85 in the
fourth quarter of 2018 and were $31.20 for the year.
Suncor’s share of Syncrude production was a record
209,600 bbls/d in the fourth quarter of 2018, compared to
174,400 bbls/d in the prior year quarter. The increase in
production was primarily due to strong reliability, as well as the
additional 5% working interest in Syncrude acquired earlier in
2018. Upgrader utilization at Syncrude was 101% in the fourth
quarter of 2018 compared to 94% in the prior year quarter.
Syncrude cash operating costs per barrel were $31.75 in the
fourth quarter of 2018, a decrease from $32.80 in the prior year
quarter as a result of higher production.
Production volumes at E&P were 90,200 boe/d in the
fourth quarter of 2018, compared to 115,200 boe/d in the prior
year quarter. In addition to natural declines, the decrease in
production was due to a temporary production interruption at the
company’s East Coast Canada assets as a result of a major storm
system in the period, as well as an unplanned outage at Buzzard in
the United Kingdom, partially offset by the addition of
production from Hebron. The production interruption at the White
Rose field extended into 2019, with partial production restarting
at the end of January 2019.
Refinery crude throughput achieved a new quarterly record of
467,900 bbls/d and refinery utilization was 101% in the fourth
quarter of 2018, compared to 432,400 bbls/d and a utilization
rate of 94% in the prior year quarter. The increase was due to
strong reliability at all of the company’s refineries, in addition
to the prior year quarter being impacted by a third‑party
power outage.
Strategy Update
Suncor’s 2018 capital program was focused on improving the
safety, long‑term reliability and efficiency of the company’s
operating assets, including execution of major turnarounds in
addition to the effective and efficient ramp up at both of Suncor’s
major growth projects, Fort Hills and Hebron.
The company spent $1.119 billion on capital expenditures,
excluding capitalized interest, during the fourth quarter of 2018,
a decrease from $1.444 billion in the prior year quarter,
primarily due to the decrease in growth capital with the
commissioning of Fort Hills and Hebron. Sustaining capital
expenditures in the fourth quarter of 2018 were comparable to the
prior year quarter.
“We remain focused on capital discipline and ensuring safe and
reliable operations across our business,” said Williams. “Through
our integrated model and the value‑driven investments we’ve made in
our business, Suncor is well positioned to continue to grow
production and cash flow, and to increase returns to shareholders
across a wide range of market conditions.”
Downstream integration continues to be a fundamental component
of Suncor’s strategy, and the overall impact of wider crude
differentials in Alberta was partially mitigated by a combination
of improved refining margins, driven by lower feedstock costs, and
the company’s favourable market access position, which allows a
significant portion of bitumen sales to be moved to the
U.S. Gulf Coast where higher prices are realized. However, due
to the impact of the FIFO method of inventory valuation, the full
benefit of lower feedstock costs at R&M has not yet been
realized due to the time lag associated with processing higher
value crude inventory.
Drilling activity at Hebron is ongoing, and production continues
to ramp up. The fourth production well came online during the
fourth quarter and contributed to increased volumes. Other E&P
activity in the fourth quarter included development drilling at
Hebron, Hibernia, White Rose and Buzzard, and development work on
the West White Rose Project and the Norwegian Oda and
Fenja projects.
Development of the Oda project has progressed ahead of schedule
and first oil is now anticipated in the second quarter of 2019, as
compared to the original target of the third quarter
of 2019.
During the fourth quarter of 2018, Suncor and its joint venture
partners reached an agreement in principle for interconnecting
pipelines between Syncrude’s Mildred Lake site and Suncor’s Oil
Sands Base plant. The lines will transfer bitumen and gas oils
between the two plants providing increased operational flexibility
and enabling higher reliability and utilization. The pipelines are
expected to be operational by the end of 2020, subject to finalized
commercial terms and regulatory approval.
Subsequent to the end of the quarter, the company received
$300 million in risk mitigation proceeds for its Libyan assets
(approximately $260 million after‑tax). The proceeds may be
subject to a provisional repayment which is dependent on the future
performance and cash flows from Suncor’s Libyan assets.
Following the approval from the Board in the third quarter of
2018 to increase the company’s share repurchase program from
$2.15 billion to $3.0 billion, the Toronto Stock Exchange
accepted a notice filed by Suncor during the fourth quarter of 2018
to increase the maximum number of shares the company may purchase
pursuant to its normal course issuer bid. The increase to the
program reinforces the company’s ongoing ability to generate cash
flow and return value to shareholders. Under Suncor’s expanded
normal course issuer bid, the company repurchased and cancelled
$1.166 billion of its own shares in the fourth quarter of
2018. Subsequent to the end of the quarter, Suncor’s Board of
Directors approved a further share repurchase program of up to
$2.0 billion.
In the fourth quarter of 2018, Suncor continued to return value
to shareholders through dividends of $574 million, and
subsequent to the end of the quarter, Suncor’s Board of Directors
approved a quarterly dividend of $0.42 per share, which represents
an increase of 17% over the prior quarter dividend.
In addition, during the fourth quarter, as part of the company’s
commitment to debt reduction, Suncor repurchased US$83 million
of 7.75% Senior Notes due in 2019 (2019 Notes) that were acquired
as part of the acquisition of Canadian Oil Sands Limited. The
aggregate principal amount of 2019 Notes that remains outstanding
has been reduced to US$140 million as a result of
the purchase.
Operating Earnings Reconciliation(1)
|
Three months ended December 31 |
Twelve months ended December 31 |
|
($ millions) |
2018 |
|
2017 |
|
2018 |
2017 |
|
|
Net
(loss) earnings |
(280 |
) |
1 382 |
|
3 293 |
4 458 |
|
|
Unrealized foreign exchange loss (gain) on U.S. dollar
denominated debt |
637 |
|
91 |
|
989 |
(702 |
) |
|
Loss on equity investment and (gain) on significant
disposals(2) |
223 |
|
— |
|
30 |
(437 |
) |
|
Impact of income tax rate adjustment on deferred taxes(3) |
— |
|
(124 |
) |
— |
(124 |
) |
|
Property damage insurance proceeds(4) |
— |
|
(55 |
) |
— |
(55 |
) |
|
Loss on early payment of long‑term debt(5) |
— |
|
18 |
|
— |
28 |
|
|
Non‑cash mark to market (gain) loss on interest rate swaps and
foreign currency derivatives(6) |
— |
|
(2 |
) |
— |
20 |
|
|
Operating
earnings(1) |
580 |
|
1 310 |
|
4 312 |
3 188 |
|
|
(1) |
Operating earnings is a
non‑GAAP financial measure. All reconciling items are presented on
an after‑tax basis. See the Non‑GAAP Financial Measures section of
this news release. |
|
|
(2) |
In 2018,
the company recorded a net non‑cash loss of $90 million,
after‑tax, in the E&P segment related to an asset exchange with
Canbriam Energy Inc. (Canbriam), comprised of the following:
an after‑tax gain of $133 million recorded in the first
quarter of 2018 for the disposal of the company’s mineral
landholdings in northeast British Columbia in exchange for an
equity stake in Canbriam and a $223 million after‑tax
impairment charge in the fourth quarter of 2018 following the
company’s assessment of forward natural gas prices and the impact
on estimated future cash flows. The third quarter of 2018 included
an after‑tax gain of $60 million in the Oil Sands segment on
the sale of the company’s interest in the Joslyn Oil Sands mining
project. The first quarter of 2017 included a $354 million
after‑tax gain in the R&M segment related to the sale of the
company’s lubricants business, combined with an after‑tax gain of
$83 million in the Corporate segment related to the sale of
the company’s interest in the Cedar Point wind facility. |
|
|
(3) |
In the
fourth quarter of 2017, the company recorded a net adjustment to
its deferred income taxes of $124 million related to tax
reform legislation in the U.S., with the most significant impact
resulting from a decrease in the U.S. corporate tax rate from
35% to 21%. The net deferred tax recovery of $124 million was
comprised of a $140 million recovery in R&M, a
$14 million expense in E&P and a $2 million expense
in the company’s Energy Trading business. |
|
|
(4) |
During the
fourth quarter of 2017, the company received after‑tax property
damage insurance proceeds of $55 million ($76 million
before tax) related to a facility incident at Syncrude that
occurred in the first quarter of 2017. |
|
|
(5) |
Charges
associated with the early repayment of debt, net of associated
realized foreign currency hedge gains, in the Corporate
segment. |
|
|
(6)
|
Non‑cash
mark to market (gain) loss on interest rate swaps and foreign
currency derivatives resulting from changes in long‑term interest
rates and foreign exchange rates in the Corporate segment. |
Corporate Guidance
No changes have been made to Suncor’s previously announced 2019
guidance. For further details and advisories regarding Suncor’s
2019 guidance, see suncor.com/guidance.
Non-GAAP Financial Measures
Operating earnings is defined in the Non‑GAAP Financial Measures
Advisory section of Suncor’s Report to Shareholders for the Fourth
Quarter of 2018 dated February 5, 2019 (the Quarterly Report) and
reconciled to the GAAP measure above and in the Consolidated
Financial Information section of the Quarterly Report. Oil Sands
operations cash operating costs, Fort Hills cash operating costs
and Syncrude cash operating costs are defined in the Non-GAAP
Financial Measures Advisory section of the Quarterly Report and
reconciled to GAAP measures in the Segment Results and Analysis
section of the Quarterly Report. Funds from operations is defined
and reconciled to the GAAP measure in the Non‑GAAP Financial
Measures Advisory section of the Quarterly Report. These non-GAAP
financial measures are included because management uses this
information to analyze business performance, leverage and liquidity
and it may be useful to investors on the same basis. These non-GAAP
measures do not have any standardized meaning and therefore are
unlikely to be comparable to similar measures presented by other
companies and should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with
GAAP.
Legal Advisory – Forward-Looking
Information
This news release contains certain forward-looking information
and forward-looking statements (collectively referred to herein as
“forward-looking statements”) within the meaning of applicable
Canadian and U.S. securities laws. Forward-looking statements in
this news release include references to: Suncor’s focus on capital
discipline and ensuring safe and reliable operations across the
business, and the belief that through the company’s integrated
model and the value-driven investments made in its business, Suncor
is well positioned to continue to grow production and cash flow,
and to increase returns to shareholders across a wide range of
market conditions; downstream integration continuing to be a
fundamental component of Suncor’s strategy; expectations for the
Oda project, including that first oil is anticipated in the second
quarter of 2019; expectations for the proposed interconnecting
pipelines between Syncrude’s Mildred Lake site and Suncor’s Oil
Sands base plant, including that the lines will transfer bitumen
and gas oils between the two plants providing increased operational
flexibility and enabling higher reliability and utilization, and
that the pipelines are expected to be operational by the end of
2020, subject to finalized commercial terms and regulatory
approval; and statements about Suncor’s share repurchase program,
including the expectation that the existing $3.0 billion share
repurchase program will be completed by the end of February 2019,
and Suncor’s ongoing ability to generate cash flow and return value
to shareholders. In addition, all other statements and information
about Suncor’s strategy for growth, expected and future
expenditures or investment decisions, commodity prices, costs,
schedules, production volumes, operating and financial results and
the expected impact of future commitments are forward-looking
statements. Some of the forward-looking statements and information
may be identified by words like “expects”, “anticipates”, “will”,
“estimates”, “plans”, “scheduled”, “intends”, “believes”,
“projects”, “indicates”, “could”, “focus”, “vision”, “goal”,
“outlook”, “proposed”, “target”, “objective”, “continue”, “should”,
“may” and similar expressions.
Forward-looking statements are based on Suncor’s current
expectations, estimates, projections and assumptions that were made
by the company in light of its information available at the time
the statement was made and consider Suncor’s experience and its
perception of historical trends, including expectations and
assumptions concerning: the accuracy of reserves and resources
estimates; commodity prices and interest and foreign exchange
rates; the performance of assets and equipment; capital
efficiencies and cost savings; applicable laws and government
policies; future production rates; the sufficiency of budgeted
capital expenditures in carrying out planned activities; the
availability and cost of labour, services and infrastructure; the
satisfaction by third parties of their obligations to Suncor; the
execution of projects; and the receipt, in a timely manner, of
regulatory and third-party approvals.
Forward-looking statements are not guarantees of future
performance and involve a number of risks and uncertainties, some
that are similar to other oil and gas companies and some that are
unique to Suncor. Suncor’s actual results may differ materially
from those expressed or implied by its forward-looking statements,
so readers are cautioned not to place undue reliance on them.
The Quarterly Report and Suncor’s Annual Information Form, Form
40-F and Annual Report to Shareholders, each dated March 1, 2018,
and other documents it files from time to time with securities
regulatory authorities describe the risks, uncertainties, material
assumptions and other factors that could influence actual results
and such factors are incorporated herein by reference. Copies of
these documents are available without charge from Suncor at 150 6th
Avenue S.W., Calgary, Alberta T2P 3E3, by calling 1-800-558-9071,
or by email request to invest@suncor.com or by referring to the
company’s profile on SEDAR at sedar.com or EDGAR at sec.gov. Except
as required by applicable securities laws, Suncor disclaims any
intention or obligation to publicly update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise.
Legal Advisory – BOEs
Certain natural gas volumes have been converted to barrels of
oil equivalent (boe) on the basis of one barrel to six thousand
cubic feet. Any figure presented in boe may be misleading,
particularly if used in isolation. A conversion ratio of one bbl of
crude oil or natural gas liquids to six thousand cubic feet of
natural gas is based on an energy equivalency conversion method
primarily applicable at the burner tip and does not represent a
value equivalency at the wellhead. Given that the value ratio based
on the current price of crude oil as compared to natural gas is
significantly different from the energy equivalency of 6:1,
utilizing a conversion on a 6:1 basis may be misleading as an
indication of value.
Suncor Energy is Canada's leading integrated energy company.
Suncor's operations include oil sands development and upgrading,
offshore oil and gas production, petroleum refining, and product
marketing under the Petro-Canada brand. A member of Dow Jones
Sustainability indexes, FTSE4Good and CDP, Suncor is working to
responsibly develop petroleum resources while also growing a
renewable energy portfolio. Suncor is listed on the UN Global
Compact 100 stock index. Suncor's common shares (symbol: SU) are
listed on the Toronto and New York stock exchanges.
For more information about Suncor, visit our web site at
suncor.com, follow us on Twitter @Suncor or together.suncor.com
A full copy of Suncor's fourth quarter 2018 Report to
Shareholders and the financial statements and notes (unaudited) can
be downloaded at
suncor.com/investor-centre/financial-reports.
Suncor’s updated Investor Relations presentation is available
online, visit suncor.com/investor-centre.
To listen to the webcast discussing Suncor's fourth quarter
results, visit suncor.com/webcasts.
Media inquiries:403-296-4000media@suncor.com
Investor inquiries:800-558-9071invest@suncor.com
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