Suncor Energy Inc. reported second quarter 2008 net earnings of CA$829 million (CA$0.89 per common share), compared to CA$738 million (CA$0.80 per common share) for the second quarter of 2007. Excluding unrealized foreign exchange gains on the company's U.S. 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 second quarter of 2008 were CA$821 million (CA$0.88 per common share), compared to CA$607 million (CA$0.66 per common share) in the second quarter of 2007.
The increase in earnings was primarily due to improved price realizations on oil sands products as benchmark crude prices rose to historically high levels, and strong results from natural gas operations. This was partially offset by lower oil sands production, increased operating expenses and purchases in the oil sands business, and reduced margins in the refining and marketing business. Planned and unplanned maintenance at oil sands, including a scheduled maintenance shutdown of one of the company's two upgraders, as well as lower than expected bitumen production, impacted both crude oil production and operational costs during the quarter.
Cash flow from operations in the second quarter of 2008 was CA$1.405 billion, compared to CA$1.027 billion in the same period of 2007. The increase was due primarily to the same factors that impacted earnings, as well as an increase in non-cash future income tax.
Net earnings for the first six months of 2008 were CA$1.537 billion, compared to CA$1.314 billion for the same period in 2007. Excluding unrealized foreign exchange impacts on the company's U.S. 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 first half of 2008 were CA$1.609 billion, compared to CA$1.175 billion in the same period for 2007. Cash flow from operations for the first six months of 2008 was CA$2.566 billion, compared to CA$1.852 billion in the first six months of 2007. The year-to-date increases in earnings and cash flow from operations were due to the same factors that impacted second quarter results and increased oil sands royalties in the first six months of 2008.
Suncor's total upstream production averaged 212,300 barrels of oil equivalent (boe) per day in the second quarter of 2008, compared to 237,200 boe per day in the second quarter of 2007. In Suncor's natural gas business, production was 226 million cubic feet equivalent (mmcfe) per day compared to second quarter 2007 production of 209 mmcfe per day. Strong performance during the first half of the year has allowed Suncor to increase its annual production outlook for natural gas to an average expected to range between 210 to 220 mmcfe per day. Oil sands production contributed 174,600 barrels per day (bpd) in the second quarter of 2008 compared to 202,300 bpd in the second quarter of 2007. Production in both quarters was lower than average because of planned shutdowns.
Oil sands cash operating costs in the second quarter of 2008 averaged CA$50.85 per barrel, compared to CA$32.70 per barrel during the second quarter of 2007. The increase in cash operating costs per barrel was due to higher operating expenses, lower production volumes, and increased third-party bitumen purchases. With lower than planned production over the first half of the year, Suncor has adjusted its production outlook to an annual average of 240,000 to 250,000 bpd for 2008, with a corresponding increase in our cash operating cost target to a range of CA$35.00 to CA$36.00 per barrel.
"A combination of a very cold winter, unplanned maintenance issues and tight bitumen supply made for a difficult start to the year," said Rick George, president and chief executive officer. "Going forward, we'll be focused on getting our oil sands operations running at steady and reliable rates. At the same time, we'll continue work to realize the full benefit of our current and planned expansions."
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