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or Name
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Suncor Energy Inc
Symbol SU
Shares Issued 1,664,527,755
Close 2016-10-26 C$ 39.38
Market Cap C$ 65,549,102,992
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Suncor earns $392-million in Q3

2016-10-26 20:15 ET - News Release

Mr. Steve Williams reports

SUNCOR ENERGY REPORTS THIRD QUARTER 2016 RESULTS

"We generated more than $2-billion in cash flow from operations during the third quarter due to strong production from our upstream assets, combined with record refining reliability and our focus on cost reduction," said Steve Williams, president and chief executive officer of Suncor Energy Inc. "Our performance demonstrates the strength of our core assets and our ability to deliver strong cash flow, even in a lower-price environment."

Highlights of the third quarter of 2016 include:

  • Cash flow from operations of $2,025-million ($1.22 per common share) driven by increased oil sands production, lower operating costs at oil sands operations and record refinery crude throughput;
  • Operating earnings of $346-million (21 cents per common share) and net earnings of $392-million (24 cents per common share), including a refining and marketing (R&M) first in, first out (FIFO) loss of $86-million;
  • Oil sands assets returned to normal production rates following the forest fire shut-in during the second quarter of 2016, resulting in strong oil sands operations production of 433,700 barrels per day;
  • Oil sands operations cash operating costs per barrel decreased to $22.15 for the third quarter of 2016, an 18-per-cent reduction versus the prior-year quarter and the lowest in over a decade;
  • Syncrude production increased to 183,800 bbl per day from 28,100 bbl per day in the prior-year quarter, as a result of additional working interests acquired in 2016, combined with improved upgrader reliability; cash costs per barrel (bbl) at Syncrude decreased to $27.65 from $41.65 in the prior-year quarter.
  • Refinery crude throughput improved to a record 465,600 bbl per day, and operating expenses decreased to $4.55 per bbl;
  • Participation agreements signed with the Fort McKay and Mikisew Cree first nations for the sale of a combined 49-per-cent interest in the East Tank Farm Development for estimated proceeds of almost $500-million.

Financial results

Suncor recorded third quarter 2016 operating earnings of $346-million (21 cents per common share) compared with $410-million (28 cents per common share) in the prior-year quarter. Highlights of the quarter included an increased share of Syncrude operating earnings, attributed to improved upgrader reliability and lower per-unit operating costs combined with the acquisition of additional working interests in 2016, a lower R&M FIFO loss, lower operating costs at oil sands operations, record refinery crude throughput, and higher production from both oil sands operations and exploration and production (E&P). These factors more than offset the unfavourable impact of both lower benchmark crack spreads and crude pricing in the third quarter of 2016. Operating earnings also included a charge for a non-commercial exploration well off the East Coast of Canada.

Cash flow from operations was $2,025-million ($1.22 per common share) compared with $1,882-million ($1.30 per common share) in the third quarter of 2015, with the improvement reflecting a higher share of operating earnings from Syncrude, a lower FIFO loss, lower operating costs at oil sands operations, a current tax recovery related to a tax rate reduction on oil and gas profits in the United Kingdom from 50 per cent to 40 per cent, record refinery crude throughput, and higher production from both oil sands operations and E&P more than offsetting lower benchmark crack spreads and crude pricing.

Net earnings were $392-million (24 cents per common share) in the third quarter of 2016, compared with a net loss of $376-million (26 cents per common share) in the prior-year quarter. Net earnings for the third quarter of 2016 included a $180-million deferred tax recovery related to a tax rate reduction on oil and gas profits in the U.K. from 50 per cent to 40 per cent. Net earnings also included an unrealized after-tax foreign exchange loss of $112-million on the revaluation of U.S.-dollar-denominated debt and a non-cash after-tax mark-to-market loss of $22-million on interest rate derivatives for future debt issuance. The net loss in the prior-year quarter included an unrealized after-tax foreign exchange loss of $786-million on the revaluation of U.S.-dollar-denominated debt.

Operating results

Suncor's total upstream production was 728,100 barrels of oil equivalent per day in the third quarter of 2016, compared with 566,100 boe per day in the prior-year quarter, primarily due to the additional 41.74-per-cent ownership interest in Syncrude acquired in 2016 in combination with significantly improved Syncrude reliability, and higher oil sands operations and E&P production, despite planned maintenance activities occurring at both oil sands and E&P.

Oil sands operations production increased to 433,700 bbl per day in the third quarter of 2016, compared with 430,300 bbl per day in the prior-year quarter, primarily due to higher in situ production, partially offset by lower synthetic crude oil (SCO) production due to unplanned upgrader maintenance. Both quarters included planned upgrader maintenance.

Oil sands operations cash operating costs per barrel decreased in the third quarter of 2016 to $22.15 per bbl, compared with $27 per bbl in the prior-year quarter, due to lower operating expenses as a result of cost reduction initiatives and lower natural gas prices, combined with increased production.

Suncor's share of Syncrude production was 183,800 bbl per day in the third quarter of 2016, compared with 28,100 bbl per day in the prior-year quarter. Syncrude upgrader reliability improved to 98 per cent, compared with 67 per cent in the prior-year quarter, which included the impact of an upgrader fire. The increase is attributed to additional working interests acquired in 2016, combined with strong reliability in the period and the processing of unfinished inventory, which was accumulated as a result of planned maintenance and impacted by the forest fires during the second quarter of 2016. Syncrude's cash operating costs per barrel in the third quarter of 2016 were the lowest in almost a decade, decreasing to $27.65 per bbl from $41.65 per bbl in the prior-year quarter, with the improvement attributed to the improved reliability combined with lower operating expenses.

Production volumes in E&P increased to 110,600 boe per day in the third quarter of 2016, compared with 107,700 boe per day in the prior-year quarter, primarily due to production from new wells at Hibernia and improved reliability and reservoir optimization at Terra Nova, partially offset by planned maintenance at Buzzard that began late in the third quarter of 2016.

Average refinery crude throughput improved to a record of 465,600 bbl per day, compared with 444,800 bbl per day in the prior-year quarter due to improved reliability and lower planned maintenance. Planned maintenance at the Montreal and Sarnia refineries commenced in the third quarter of 2016.

"Suncor continues to find ways to reduce costs across the company," said Mr. Williams. "Our cost-reduction efforts, combined with safe, reliable operations, have delivered the lowest cash costs per barrel at our oil sands operations in over a decade, and Syncrude delivered similar improvements."

Strategy update

Suncor continues to focus on the disciplined execution of its 2016 capital plan, achieving efficiencies while advancing major growth projects, Fort Hills and Hebron.

The company's strategy includes divesting of non-core assets that are not key components of the integrated model. In the third quarter of 2016, Suncor has advanced the sales process for its lubricants business and commenced the sales process for certain assets and liabilities related to its renewable energy business.

During the quarter, Suncor signed participation agreements for the sale of 34.3-per-cent and 14.7-per-cent equity interests in the East Tank Farm Development project with Fort McKay and Mikisew Cree first nations, respectively, for estimated proceeds of $497-million. The transactions are expected to close in the second quarter of 2017, subject to closing conditions, once the assets are operational. The East Tank Farm Development is a Suncor-operated mid-stream asset currently under construction. Once completed, the facility will support market access for Fort Hills through third party pipeline connectivity and consist of bitumen storage, blending and cooling facilities.

"We continue to move our key growth initiatives forward," said Mr. Williams. "We have made significant progress on the Fort Hills project in the quarter, and the signing of historic agreements with the Fort McKay and Mikisew Cree first nations to sell interests in our East Tank Farm Development underscores our commitment to developing mutually beneficial long-term relationships with aboriginal communities."

Subsequent to the quarter-end, Suncor completed the acquisition of a 30-per-cent participating interest in the U.K. North Sea Rosebank project at a cost of $50-million (U.S.). The project is considered to be one of the largest remaining undeveloped resources in the U.K. North Sea and is expected to be complementary to Suncor's existing asset portfolio.

Oil sands operations

The main focus in oil sands operations in the third quarter of 2016 was the successful return of all Fort McMurray region assets to normal rates of production following the forest fires in the second quarter of 2016, while continuing to progress key reliability, safety and environmental performance projects. Capital spending in the third quarter of 2016 included planned maintenance at Upgrader 1, which commenced in the third quarter, as well as construction of the East Tank Farm Development.

Oil sands ventures

The Fort Hills project was more than 70 per cent complete at the end of the third quarter of 2016, with the majority of the remaining work based in Alberta. Key activities in the period included completion of the utilities modules, significant progress on modules and construction in secondary extraction, as well as procurement of mining and extraction equipment. Progress also included development of sustaining activities that will support the mine plan following the commencement of production. First oil remains on track for late 2017. The company is working on opportunities to mitigate the impact on overall project costs of both unfavourable foreign exchange rates and the forest fires in the second quarter of 2016 and believes Suncor's total capital intensity will be consistent with the original sanction estimate of $84,000 per flowing barrel of bitumen.

The third quarter of 2016 also included an increased share of Syncrude sustaining capital, which was primarily focused on maintaining assets and implementing the mine tailings plan.

Exploration and production

Construction of the Hebron project continued in the third quarter of 2016. Following the arrival of the utilities and process module from South Korea, all topside modules are now on location in Bull Arm, Nfld., and integration of these modules is under way. First oil from the project is expected in late 2017. Growth capital also included drilling at the Shelburne basin off the East Coast of Canada, including commencement of a second exploration well, as well as development drilling at Hibernia, White Rose and Golden Eagle.

              OPERATING EARNINGS (LOSS) RECONCILIATION (1)
                              ($ millions)

                                     Three months ended     Nine months ended
                                           Sept. 30,             Sept. 30,
                                        2016       2015       2016       2015

Net earnings (loss)                     $392      $(376)      $(86)       $12
Unrealized foreign exchange
loss (gain) on U.S.-dollar-
denominated debt                         112        786       (746)     1,548
Impact of income tax rate
adjustments on deferred
taxes (2)                               (180)         -       (180)        17
Non-cash mark-to-market loss
on interest rate swaps (3)                22          -        182          -
Non-cash loss on early payment
of long-term debt (4)                      -          -         73          -
COS acquisition and
integration costs (5)                      -          -         38          -
Gain on significant
disposal (6)                               -          -          -        (68)
Restructuring charges (7)                  -          -          -         57
Insurance proceeds (8)                     -          -          -        (75)
Operating earnings (loss) (1)            346        410       (719)     1,491

(1) Operating earnings (loss) are a non-generally accepted accounting 
principle financial measure. All reconciling items are presented on an 
after-tax basis. See the non-GAAP financial measures advisory section 
of Suncor's management's discussion and analysis dated Oct. 26, 2016.
(2) The three- and nine-month periods ended Sept. 30, 2016, were 
impacted by an adjustment to the company's deferred income taxes 
resulting from a 10-per-cent decrease in the United Kingdom tax rate on 
oil and gas profits from the North Sea. The nine-month period ended 
Sept. 30, 2015, was impacted by a 12-per-cent decrease in the U.K. tax 
rate on oil and gas profits from the North Sea, offset by a 2-per-cent 
increase in the Alberta corporate income tax rate in the second quarter 
of 2015.   
(3) Non-cash loss on interest rate swaps resulting from a decrease in 
long-term interest rates in the corporate segment.                           
(4) Charges associated with early repayment of debt in the corporate        
segment.                                                                
(5) Transaction and related charges associated with the acquisition of      
Canadian Oil Sands Ltd. (COS) in the corporate segment.             
(6) After-tax gain related to the sale of the company's share of certain    
assets and liabilities of Pioneer Energy in the R&M segment.            
(7) Restructuring charges related to cost reduction initiatives in the      
corporate segment.                                                      
(8) Business interruption insurance proceeds on the Terra Nova asset in 
the E&P segment.                                                            

Corporate guidance

Suncor has updated its 2016 corporate guidance, previously issued on July 27, 2016. The full year outlook ranges for production, refinery throughput and utilization, and sales assumptions have been updated.

                          FULL YEAR 2016 GUIDANCE

                                   Full year 2016 outlook      Revised Oct. 26,
                                            July 27, 2016                 2016
Suncor total production
(boe/d) (1)                               585,000-620,000      610,000-625,000
Oil sands (bbl/d)                         375,000-395,000      375,000-385,000
Syncrude (bbl/d)                          105,000-115,000      120,000-130,000
Exploration and production
(boe/d)                                   105,000-110,000      110,000-115,000
Suncor refinery throughput
(bbl/d)                                   420,000-440,000      425,000-435,000
Suncor refinery utilization                        91%-95%              92%-94%
Sales assumptions
Oil sands sales
Synthetic crude oil
(bbl/d)                                   265,000-275,000      255,000-265,000
Bitumen (bbl/d)                           100,000-120,000      115,000-125,000
Refined product sales (bbl/d)             510,000-550,000      520,000-530,000

The full year outlook range for capital expenditures has decreased from $6.0-billion to $6.5-billion to $5.8-billion to $6.0-billion.

                             CAPITAL EXPENDITURES 
                                  ($ millions)

                         Full year 2016 outlook          Full year 2016 outlook
                                  July 27, 2016           revised Oct. 26, 2016
                          Capital      % growth           Capital      % growth
                     expenditures       capital      expenditures       capital

Upstream            $5,250-$5,600            65%    $5,100-$5,230            70%
Downstream                700-800             5%          675-720             5%
Corporate                  50-100             5%            25-50             5%
Total (1)             6,000-6 500            55%      5,800-6,000            60%

(1) Capital expenditures exclude capitalized interest of $600-million to
$700-million.

The full year outlook range for several items has also been updated.

                          UPDATED FULL YEAR OUTLOOK

                                Full year 2016 outlook   Full year 2016 outlook
                                         July 27, 2016    revised Oct. 26, 2016
Oil sands cash operating                                                    
costs ($ per bbl)                        $27.00-$30.00            $25.50-$27.50
Syncrude cash operating                                                     
costs ($ per bbl)                        $41.00-$44.00            $37.00-$39.00
Current income taxes ($ millions)              $0-$300                $100-$300
U.K. tax rate (effective)                       40%-45%                  35%-40%
                                                                            
Production ranges for oil sands, Syncrude and E&P are not intended to   
add to equal Suncor total production.                                   
Capital expenditures exclude capitalized interest of $600-million to 
$700-million.                                                                

The following full year outlook assumptions have also been adjusted: Brent, Sullom Voe, from $40 (U.S.) per bbl to $44 (U.S.) per bbl, WTI, Cushing, from $39 (U.S.) per bbl to $43 (U.S.) per bbl, WCS, Hardisty, from $26 (U.S.) per bbl to $29 (U.S.) per bbl, New York Harbor 3-2-1 crack spread from $12.50 (U.S.) per bbl to $13.50 (U.S.) per bbl, AECO-C Spot from $1.75 per gigajoule to $2 per gigajoule and the U.S.-dollar/Canadian-dollar exchange rate from 0.75 to 0.76.

For further details and advisories regarding Suncor's 2016 revised corporate guidance, see the Suncor website.

A full copy of Suncor's third quarter 2016 report to shareholders and the financial statements and notes (unaudited) can be downloaded at the Suncor website.

We seek Safe Harbor.

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