Suncor Posts Positive Third Quarter Results
Suncor has announced third quarter 2008 net earnings of $815 million ($0.87 per common share) compared to $627 million ($0.68 per common share) for the third quarter of 2007. Excluding unrealized foreign exchange impacts on the company's U.S. dollar denominated long-term debt, and project start-up costs, earnings for the third quarter of 2008 were $971 million ($1.04 per common share), compared to $538 million ($0.58 per common share) in the third quarter of 2007.
The increase in earnings was primarily due to improved price realizations for our oil sands products. This was partially offset by an increase in operating expenses, product purchases and Crown royalties in our oil sands business.
Net earnings for the first nine months of 2008 were $2.352 billion, compared to $1.941 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 nine months of 2008 were $2.580 billion, compared to $1.712 billion in the same period for 2007.
Cash flow from operations in the third quarter of 2008 was $1.346 billion, compared to $957 million in the same period of 2007. Cash flow from operations for the first nine months of 2008 was $3.912 billion, compared to $2.809 billion in the first nine months of 2007.
The increase in earnings over the first nine months of 2008, and the increase in cash flow from operations for the three and nine month periods ended September 30, 2008, are due primarily to the same factors that impacted third quarter earnings.
Suncor's total upstream production averaged 281,000 barrels of oil equivalent (boe) per day in the third quarter of 2008, compared to 274,300 boe per day in the third quarter of 2007. In Suncor's natural gas business, production was 213 million cubic feet equivalent (mmcfe) per day compared to third quarter 2007 production of 211 mmcfe per day. Oil sands production contributed 245,600 barrels per day (bpd) in the third quarter of 2008 compared to 239,100 bpd in the third quarter of 2007.
Oil sands cash operating costs in the third quarter of 2008 averaged $34.00 per barrel, compared to $25.10 per barrel during the third quarter of 2007. The increase in cash operating costs per barrel was due to higher operating expenses and increased natural gas input costs.
Production volumes were lower than planned in the third quarter and as a result, Suncor has adjusted its production outlook to an annual average of 235,000 bpd with a corresponding increase in cash operating costs to a target of $36.50 per barrel.
"We've had a challenging quarter with unplanned maintenance, including issues at our hydrogen facilities that impacted our product mix," said Rick George, president and chief executive officer. Production volumes in the quarter were impacted by unplanned maintenance activities in our upgrading and extraction assets. In addition, an unplanned shutdown of facilities that supply hydrogen reduced production of higher-value sweet (low sulphur) synthetic crude oil and diesel. Repairs to the facilities are complete and production of sweet products is increasing.
"With these issues behind us, we continue to target production of approximately 300,000 barrels per day by the end of the year as we work to realize the full value of our expanded oil sands production facilities," said George.
Commissioning of Suncor's $2.3 billion expansion to one of two oil sands upgraders is nearing completion and production volumes are expected to continue ramping up in 2009 toward design capacity of 350,000 bpd.
Bitumen feedstock from Suncor's Firebag in-situ operations is also expected to increase following the lifting in July of a production cap imposed by provincial regulators. Wells that had been shut in have begun steaming and small amounts of incremental production are expected to come on line in the fourth quarter of 2008.
Operations and Growth Update
On October 23, Suncor announced an update to the schedule of its $20.6 billion Voyageur growth strategy, including reporting plans for 2009 capital spending of $6 billion.
"In light of current financial market conditions, we've modified our capital plans for 2009, reducing targeted spending by more than a third," said George. "Our aim is to ensure we are living within our means during a time of market uncertainty, while also making the strategic spending decisions that will allow us to continue on our growth path."
The company's growth outlook maintains spending and construction timelines for the third and fourth stages of Firebag in-situ operations. Completion of Firebag Stages 3 and 4 (in 2009 and 2010, respectively) is expected to provide increases in bitumen production and future cash flow.
In the near-term, Suncor expects to scale down spending and the pace of construction on the company's planned Voyageur upgrader, delaying targeted completion by approximately one year to the end of 2012. Stages 5 and 6 of Firebag in-situ operations are expected to proceed but, as they are at relatively early phases of development, spending and scheduling plans remain flexible to respond to market conditions.
Of the total Voyageur capital budget of $20.6 billion, Suncor had spent approximately $5.3 billion at the end of the third quarter.
"We remain committed to an integrated expansion strategy and targeted oil sands production of 550,000 barrels per day," said George. "However, we've always had options available to us in terms of how the expansion is rolled out - and we believe in the current economic environment it's prudent to exercise that flexibility."
The company's 2009 capital spending plan is expected to be financed through undrawn credit facilities and cash flow from operations. As Suncor invests for future growth, prudent debt management remains a priority. Net debt levels increased to $5.3 billion in the third quarter of 2008 from $3.2 billion at year-end 2007.
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