Suncor’s best since days of $100 oil

CALGARY • Canadian oil giant Suncor Energy

Inc. reported Thursday its strongest results since oil was at $100 a barrel — a profit of nearly $1.3 billion in the third quarter — with help from a war on costs it says is repositioning its oilsands as a low cost, low carbon, globally competitive business.

Cash costs for producing a barrel of oil from its oilsands operations were $21.60, down from $22.15 a year ago, which the company are the lowest in a decade.

There are opportunities for further cost reductions with the completion this year of two major growth projects, the Fort Hills oilsands mining project in Alberta and the Hebron oil project offshore Newfoundland, as the company turns its attention to making its operations as reliable as possible, said CEO Steve Williams.

“The most important part of getting cash costs down is reliability, and we have become increasingly confident in the level of reliability we are seeing,” Williams told analysts in a conference call.

Automation at its mines, where Suncor has been introducing driverless trucks, is reducing maintenance costs, increasing vehicle productivity, increasing mine production, he said.

Suncor has also re-engineered all its processes and re-examined all aspects of its operations, worked with suppliers, customers and other stakeholders, to reduce costs in a lower oil price environment.

The cost drive is part of a focus on increasing returns rather than growing production, Williams said.

“It’s clear to us that the industry has moved from an environment of resource scarcity to one of resource abundance,” he said. “In that world, an oil producer can still thrive but production growth targets becomes far less important than generating free cash and earning returns.”

“This means continually reducing our costs and our environmental footprint while exercising steadfast capital discipline,” said Williams. “And of course, the oilsands’ advantage — a low decline, long life resource base that is cost and carbon competitive on a global scale — is a huge asset.”

The company reported net earnings of $1.289 billion (78 cents per share) in the third quarter, compared to $392 million (24 cents) in the same period a year ago.

The latest earnings included an unrealized after-tax foreign exchange gain of $412 million on the revaluation of U.S. dollar denominated debt.

Operating earnings were $867 million (52 cents), compared to $346 million (21 cents) a year ago, on higher oil prices, record-high refinery throughput and retail and wholesale sales volumes in Canada, record-high oilsands production, which more than offset unfavourable exchange rates.

Cash flow was $2.47 billion ($1.49 per share) compared to $2.03 billion ($1.22) in the year-ago period.

“On balance, it all added up to our best quarterly financial results since the first quarter of 2014, when WTI (crude oil) was over $100 (Canadian) a barrel,” said CFO Alister Cowan.

In the past three years, production increased by 27 per cent, to 739,900 barrels of oil equivalent a day in the third quarter, while overall costs were down by six per cent, he said.

“Suncor reported a very strong quarter,” Macquarie Securities Group said in a report to clients. “The financial beat was on a combination of strong operating results. The most material items were better than expected production, crude pricing and refining throughput.”

Williams said the Fort Hills and Hebron projects are moving from construction to operation, with first oil expected by the end of the year and gradual ramp up after that. The 350,000 barrels a day Syncrude oilsands plant, of which Suncor is the majority owner, returned to full production during the quarter after volumes were cut for several months earlier in the year following a fire at the upgrading facility.

Syncrude has appointed Suncor executive Doreen Cole to managing director, replacing CEO Mark Ward, who is retiring. Cole was most recently Suncor’s senior vice president, regional maintenance and reliability, based in Fort McMurray.

Suncor’s next growth will come from increased reliability at Syncrude and other debottlenecking opportunities, then smaller in situ oilsands projects, Williams said. They will move forward if they can break even with oil prices at $50 a barrel, he said.