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SUNCOR 2016 - Results stronger than expectations

Being Canada’s leading integrated energy company, headquartered in Calgary, Alberta (Canada), Suncor focuses on developing one of the world’s largest petroleum resource basins – Canada’s Athabasca oil sands, specializing in the production of synthetic crude from oil sands. In addition, Suncor explores for, acquires, develops, produces and markets crude oil and natural gas in Canada and internationally, as well as transporting and refining crude oil and marketing petroleum and petrochemical products. Suncor operates a renewable energy business and energy trading activities focused on the marketing and trading of crude oil, natural gas and byproducts.

In spite of the devastating forest fires [1], Alberta’s tough economic situation and persistent low oil prices in 2016, Suncor has succeed in increasing returns to its shareholders and strived to be a low-cost competitor in its sector.

Even with an average WTI crude price of just US$ 43.35 in 2016, Suncor generated Can$ 5.7 billion of cash-flow from operation activities, compared to Can$ 6.9 billion in 2015, which covered Suncor´s sustaining capital and dividend requirement of Can$ 4.2 billion.

According to the Annual Financial Report of Suncor in 2016, net earnings (EAT – earnings after taxation) of the Company in 2016 amounted Can$ 445 million, compared to a net loss of Can$ 1.995 billion in 2015 and net earnings of Can$ 2.699 billion in 2014. The company´s financial results in 2016 are primarily driven by record upstream crude oil sales of 628 700 bbls/d in 2016 at an average realized price of Can$ 49.11/bbl and total refined product sales of 521 400 bbls/d.

The Company´s revenue reached Can$ 26 807 million in 2016, which is 26% less compared to Can$ 29 208 in 2015 and Can$ 39 862 in 2014.

The total production of the company in 2016 was 622 800 barrels of oil equivalent per day (boe/d), which is an 8% increase compared to 2015, despite production outages at Oil Sands operations and Syncrude due to the forest fires.

The production of three main segments – oil sand operations / Syncrude operations / explore & production operations – achieved the following financial results in 2016:

The production from oil sand operations increased 9% compared to 2015 and averaged 374 800 bbls/d for the year 2016.

  • Bitumen production from Oil Sands Base operations decreased by 22% to an average of 238 000 bbls/d in 2016, compared to 307 300 bbls/d in 2015.The decrease was due to production outages associated with the forest fires in the second quarter of 2016 and an increase in planned maintenance.
  • In Situ production decreased by 4% to an average of 208 400 bbls/d in 2016, compared to 217 600 bbls/d in 2015.

The Syncrude production in 2016 increased by 436% to 130 100 bbls/d, compared to 29 800 bbls/d in 2015.

Production from the explore &production operations segment averaged at 117 900 boe/d.

The average Oil Sands operation costs for 2016 reduced by 5% and amounted to Can$ 26.5 (less than US$ 20) compared to Can$ 27.85 in 2015, and were the lowest since 2007. The decrease was a result of Suncor´s cost reduction initiatives and lower natural gas prices.

Syncrude´s cash operating costs per barrel decreased from Can$ 42.00 /bbl in 2015 to Can$ 35.95 /bbl in 2016 (a decrease of close to 15%), despite the impact on production associated with the forest fires.

The following transactions are the main investment Highlights of Suncor in 2016:

  • In 2016 the Company succeeded in completing the acquisition of an additional 5% interest in Syncrude from Murphy Oil Company Ltd for Can$ 946 million, increasing Suncor´s ownership interest to 53.74% and adding an additional 17 500 bbls/d of Synthetic Crude Oil Capacity. The acquired Canadian Oil Sands Limited in the first quarter of 2016 enabled 128 600 bbls/d of synthetic crude oil capacity to be added.
  • In 2016 Suncor successfully divested its non-core assets and reached an agreement to sell its lubricants business for Can$ 1.125 billion and its interest in the Cedar Point wind facility for Can$ 291 million.
  • In 2016 Suncor invested Can$ 150 million in technology.

[1] The Fort McMurray forest fires were the largest natural disaster in Canadian history. Over 80 000 people including Suncor´s employees had to leave their homes, with many suffering losses. For the first time in Suncor´s history the company had to close and then restarted its oil sands base which had an impact on financial results in 2016.