Suncor Energy Inc. (Suncor) has reported net earnings of CAD2.14 billion, or CAD2.29 per share, for 2008, compared with the net earnings of CAD3 billion, or CAD3.23 per share, in the previous year. It also reported cash flow from operations of CAD4.5 billion for 2008, compared with the cash flow from operations of CAD4 billion in the previous year.
Excluding unrealized foreign exchange impacts on the company’s US dollar denominated long-term debt, the impact of income tax rate reductions on opening future income tax liabilities, and project start-up costs, 2008 earnings were CAD3.013 billion (CAD3.23 per common share), compared to CAD2.390 billion (CAD2.59 per common share) in 2007.
The increases in earnings and cash flow from operations are due primarily to higher annual average price realizations for oil sands and natural gas products. This was partially offset by unscheduled maintenance – which led to higher operating expenses, lower production and increased product purchases – and decreased earnings from our downstream operations due to declining commodity prices in the second half of the year which reduced the value of inventories.
“We’ve had a challenging 2008 with unscheduled maintenance at our oil sands operations,” said Rick George, president and chief executive officer. “We’ve put considerable effort into maximizing the reliability of our assets with the target of achieving higher, more stable production rates in 2009 and beyond.”
Suncor’s total upstream production averaged 264,700 barrels of oil equivalent (boe) per day in 2008, compared to 271,400 boe per day in 2007. Oil sands production contributed 228,000 barrels per day (bpd) in 2008 compared to 235,600 bpd in 2007. Oil sands production volumes and sales mix were impacted during the year by planned and unplanned maintenance activities in the company’s upgrading and extraction facilities. In Suncor’s natural gas business, production was 220 million cubic feet equivalent (mmcfe) per day compared to an average of 215 mmcfe per day in 2007.
Oil sands cash operating costs in 2008 averaged CAD38.50 per barrel, compared to CAD27.80 per barrel during 2007. The increase in cash operating costs per barrel was due to higher operating expenses including increased unplanned maintenance, as well as increased third party bitumen purchases and higher natural gas input costs.
Commissioning of Suncor’s CAD2.3 billion expansion to one of two oil sands upgraders was completed in the third quarter of 2008. With the completion of this expansion, Suncor has upgrading design capacity in place of 350,000 bpd. Actual production in 2009 is expected to be less than design capacity at 300,000 bpd (+5%/-10%) primarily due to expected constraints in bitumen supply and planned maintenance in the third quarter.
At the company’s annual and special meeting in April 2008, Suncor shareholders approved a split of the company’s common shares on a two-for-one basis, and the shares began trading at the split adjusted price in May on both the Toronto and New York stock exchanges.
Fourth Quarter 2008
Suncor recorded a net loss in the fourth quarter 2008 of CAD215 million (CAD0.24 per common share), compared to net earnings of CAD1.042 billion (CAD1.13 per common share) for the fourth quarter of 2007. Excluding unrealized foreign exchange impacts on the company’s US dollar denominated long-term debt, the impact of income tax rate reductions on opening future income tax liabilities, and project start-up costs, earnings for the fourth quarter of 2008 were CAD434 million (CAD0.46 per common share), compared to CAD677 million (CAD0.73 per common share) in the fourth quarter of 2007. Cash flow from operations for the fourth quarter of 2008 was CAD551 million, compared to CAD1.200 billion in the fourth quarter of 2007.
The decrease in earnings was primarily due to significant decreases in benchmark commodity prices over the course of the fourth quarter of 2008. This negatively impacted both our sales revenues and the value of our inventories. In addition, we had higher operating expenses in our oil sands business. These impacts were partially offset by mark-to-market gains on our crude oil hedges. The decrease in cash flow from operations was due primarily to the same factors that impacted earnings during the quarter excluding the impact of the crude oil hedging gains.
Suncor’s combined oil sands and natural gas production for the fourth quarter of 2008 was 279,400 boe per day, compared to 290,700 boe per day in the same period of 2007. Oil sands production in the fourth quarter of 2008 averaged 243,800 bpd, compared to fourth quarter 2007 production of 252,500 bpd. Production volumes were reduced in the fourth quarter of 2008 due to planned and unplanned maintenance. Natural gas production averaged 213 mmcfe per day in the fourth quarter of 2008, compared to the 229 mmcfe per day recorded in the fourth quarter of 2007. The decrease in production was primarily due to third party processing outages during the fourth quarter of 2008.
Fourth quarter 2008 oil sands cash operating costs were CAD41.30 per barrel, compared to CAD27.90 per barrel in the same period of 2007. Cash operating costs per barrel were higher in the fourth quarter primarily due to higher total operating costs, including expenses and production impacts related to a fire at the oil sands facility in late November 2008.
In the company’s downstream business, planned maintenance at the Sarnia refinery, which involved a partial shutdown of the facility’s operating units, was completed in October 2008. This shutdown was completed safely, on schedule and on budget.
Operational and Financial Outlook:
In January, Suncor’s Board of Directors approved a revised 2009 capital spending plan of CAD3 billion, with approximately one third of the budget targeted to growth projects and the remainder for spending on base business operations. The previous plan, approved in October 2008, had targeted spending of CAD6 billion.
With the revised plan, construction on the Voyageur upgrader and Firebag Stage 3 will be wound down and the projects placed in a “safe mode” pending resumption of expansion work. At this time, construction restart and completion targets for these projects, and start up and completion targets for all other expansion projects, have not been determined. Capital growth plans will be reviewed on a quarterly basis in light of market conditions and updates provided as details are known.
“With market conditions limiting our growth capital spending in 2009, we will be tightly focused on getting full value from our existing assets,” said George. “Safe, reliable, cost-effective and environmentally responsible performance will be the keys to weathering the current downturn and ensuring we are well positioned for a market recovery. We have some of the most experienced employees and contractors in the industry and, going forward, I expect everyone to be lined up behind these priorities.”
The 2009 outlook is based on Suncor’s current expectations, estimates, projections and assumptions for the 2009 fiscal year and is subject to change. Assumptions are based on management’s experience and perception of historical trends, current conditions, anticipated future developments and other factors believed to be relevant. Assumptions of the 2009outlook include implementing reliability and operational efficiency initiatives which we expect to minimize unplanned maintenance in 2009.