Suncor Reports 4Q Results, Sets 2010 Operational Goals



Suncor reported fourth quarter 2009 net earnings of $457 million ($0.29 per common share), compared to a net loss of $215 million ($0.24 per common share) for the fourth quarter of 2008. Operating earnings in the fourth quarter of 2009 were $323 million ($0.21 per common share), compared to $14 million ($0.02 per common share) in the fourth quarter of 2008. Cash flow from operations was $1.129 billion in the fourth quarter of 2009, compared to $231 million in the fourth quarter of 2008.

The increase in operating earnings and cash flow from operations in the fourth quarter of 2009 was primarily due to increased upstream production and refined product sales volumes resulting from the merger with Petro-Canada, higher price realizations due to stronger benchmark crude oil prices in the fourth quarter of 2009 compared to the same period in 2008, however these realizations were partially offset by realized losses of approximately $185 million after-tax on risk management derivative contracts, and increased production from Suncor's legacy oil sands operations resulting from improved operational reliability. These factors were partially offset by higher operating expenses that resulted from the merger with Petro-Canada and the increased production at our legacy oil sands operations, increased royalty expense due to the higher benchmark crude oil prices, and a fire at one of our upgraders in December 2009 which impacted overall production in the fourth quarter of 2009 by approximately 30,000 barrels per day.

"We started the year confronting one of the most challenging global economic downturns of the past century, but today Suncor is a larger, stronger and more financially flexible company as we continue to realize some significant synergies following the merger with Petro-Canada," said Rick George, president and chief executive officer. "We've made gains on achieving safe, reliable and cost-effective energy production across all our operations in 2009, which we intend to build on in 2010."

Suncor's total upstream production during the fourth quarter of 2009 averaged 638,200 barrels of oil equivalent (boe) per day, including additional production of 325,600 boe per day resulting from the merger. Upstream production from Suncor's legacy oil sands and natural gas operations averaged 312,600 boe per day in the fourth quarter of 2009, compared to 279,400 boe per day in the fourth quarter of 2008.

Oil Sands production (excluding proportionate production share from the Syncrude joint venture) contributed an average 278,900 barrels per day (bpd) in the fourth quarter of 2009, compared to fourth quarter 2008 production of 243,800 bpd. Average production increased compared to the fourth quarter of 2008 as a result of improved operational reliability during the quarter. However, production volumes were negatively impacted by unplanned maintenance activities following the upgrader fire in December 2009.

Cash operating costs for our oil sands operations (excluding Syncrude) averaged $38.70 per barrel in the fourth quarter of 2009, compared to $41.30 per barrel during the fourth quarter of 2008. The decrease in cash operating costs per barrel was primarily due to increased production and a decrease in natural gas input prices. These factors were partially offset by an increase in operational expenses due to the inclusion of operating costs from MacKay River facilities in the fourth quarter of 2009. The merger with Petro-Canada did not result in increased oil sands production volumes (excluding Syncrude), as production from MacKay River had been included in Suncor's reported production from January 1 to July 31, 2009 as volumes processed by Suncor under a processing fee agreement. Production from MacKay River averaged 31,700 bpd in the fourth quarter of 2009.

Suncor's proportionate production share from the Syncrude joint venture contributed an average 39,300 bpd of sweet synthetic crude production during the fourth quarter of 2009.

Production from Suncor's natural gas business during the fourth quarter of 2009 averaged 764 million cubic feet equivalent (mmcfe) per day. Production from Suncor's legacy natural gas operations averaged 202 mmcfe per day in the fourth quarter of 2009, compared to 213 mmcfe per day in the fourth quarter of 2008. This decrease in production was primarily due to shut-in production in the Elmworth area and the sale of certain non-core assets in the second quarter of 2009.

During the fourth quarter of 2009, East Coast Canada production contributed an average 63,600 bpd, while production from our International segment (comprising our assets in the North Sea and other international areas) averaged 129,000 bpd. Production for both the East Coast Canada and International segments was lower than capacity primarily as a result of planned and unplanned maintenance, as well as OPEC production quota constraints in Libya.

Refining and Marketing's fourth quarter earnings reflected the merger with Petro-Canada and the impact of strong retail margins. Sales of refined petroleum products for the fourth quarter averaged 82.9 million litres per day, which included 52.7 million litres per day resulting from the merger. Suncor's legacy refining and marketing operations averaged 30.2 million litres per day in the fourth quarter of 2009, compared to 31.5 million litres per day for the same period in 2008.

2009 Overview

At the company's annual and special meeting in June 2009, Suncor shareholders approved a merger with Petro-Canada. The merger subsequently closed on August 1, 2009, and Suncor became Canada's largest energy company and fifth largest North American-based energy company by market capitalization.

Net earnings for 2009 were $1.146 billion ($0.96 per common share), compared to $2.137 billion ($2.29 per common share) in 2008. Operating earnings in 2009 were $1.206 billion ($1.01 per common share), compared to $2.534 billion ($2.72 per common share) in 2008. Cash flow from operations was $2.799 billion in 2009, compared to $4.057 billion in 2008.

The decrease in 2009 operating earnings and cash flow from operations was primarily due to lower price realizations, as average benchmark commodity prices were significantly weaker in 2009 compared to 2008, in addition to realized losses of approximately $315 million after-tax on risk management derivative contracts as settlement prices were lower than benchmark prices for much of the year. These factors were partially offset by the increased upstream production and refined product sales volumes resulting from the merger with Petro-Canada, and improved operational performance from our existing oil sands assets.

After completion of the merger with Petro-Canada, Suncor's total upstream production during the final five months of 2009 averaged 635,200 boe per day, including additional production of 311,100 boe per day resulting from the merger.

Oil Sands production (excluding proportionate production share from the Syncrude joint venture) contributed an average 290,600 bpd in 2009, compared to 2008 production of 228,000 bpd. The increased production was primarily due to improved operational reliability in 2009, partially offset by unplanned maintenance activities following the upgrader fire in December 2009. Production in 2008 was negatively impacted by planned and unplanned maintenance shutdowns in our upgrading and extraction assets, as well as a regulatory imposed production cap on our Firebag in-situ operations. Syncrude operations contributed an average 38,500 bpd of sweet synthetic crude production in the last five months of 2009.

Oil Sands cash operating costs in 2009 (excluding Syncrude) averaged $33.95 per barrel, compared to $38.50 per barrel during 2008. The decrease in cash operating costs per barrel was primarily due to higher production and a decrease in natural gas input prices. These factors were partially offset by an increase in operational expenses due to the inclusion of operating costs from MacKay River facilities after completion of the merger.

Post-merger production from Suncor's natural gas business during the final five months of 2009 averaged 767 mmcfe per day. Production from Suncor's legacy natural gas operations averaged 210 mmcfe per day in 2009, compared to 220 mmcfe per day in 2008.

East Coast Canada production contributed an average 58,000 bpd during the final five months of 2009, while production from our International segment contributed an average 120,800 bpd in the same period. Production for both of these segments was lower than capacity primarily as a result of planned and unplanned maintenance, the tie-in of the North Amethyst extension at White Rose, and OPEC production quota constraints in Libya.

Growth and Operational Update

In November 2009, Suncor's Board of Directors approved a $5.5 billion capital spending plan for 2010. Approximately $1.5 billion will be directed toward growth project funding, primarily at the company's oil sands operations, while $4 billion in spending is targeted to sustaining existing operations.

The majority of growth spending will be directed toward the Firebag Stage 3 in-situ oil sands expansion, which was approximately 50 per cent complete before being deferred in early 2009. Suncor now expects the project to begin production in the second quarter of 2011, with volumes then beginning to ramp up toward design capacity of approximately 68,000 bpd of bitumen over a period of approximately 18 months. Spending will also be directed to Firebag Stage 4 to support a target of first bitumen production in the fourth quarter of 2012. Stage 4 also has a design capacity of 68,000 bpd.

"These are the first steps in our strategic plan to steadily increase oil sands production as we embark on a period of disciplined, but significant growth," said George. "Suncor enjoys the luxury of having more growth opportunity than we can immediately execute, so it's really a matter of ranking these opportunities and making sure we proceed with the right project at the right time and in the right way."

Growth capital will also be directed toward completing a naphtha unit in one of our upgraders and to the expansion of Suncor's St. Clair Ethanol Plant. International growth capital plans include commitments in Libya and investments planned to bring the Ebla gas project in Syria into production in the second quarter of 2010.

Capital plans and sequencing for other projects in Suncor's growth portfolio are under evaluation with a further update expected in the fourth quarter of 2010.

The company continues to incur costs related to placing certain growth projects into "safe mode" as a result of the company revising its 2009 capital budget due to market conditions earlier in the year. Safe mode is defined as the costs of deferring the projects and keeping the equipment and facilities in a safe manner in order to expedite remobilization. As a result of placing the company's projects into safe mode, pre-tax costs of $382 million were incurred in 2009. Further safe mode costs of $150 million to $200 million on a pre-tax basis are expected to be incurred in 2010.

As part of its strategic business alignment, Suncor announced its intention to divest of a number of non-core assets. The proposed divestments identified to date include certain natural gas assets in Western Canada and the United States Rockies, all Trinidad and Tobago assets and certain non-core North Sea assets, including all assets in The Netherlands.

On December 31, 2009, Suncor entered into an agreement to sell substantially all of its oil and gas producing assets in the United States Rockies for proceeds of $517 million (US$494 million), which is approximately equal to its net book value at December 31, 2009. The sale is expected to close in March 2010.

"As a result of the recent merger, Suncor now holds the largest single position in the oil sands industry," said George. "The combination of strategic investment in oil sands growth projects and strategic divestment of non-core assets will mean a steady shift in balance in favour of what has always been Suncor's core business."

In conjunction with the merger with Petro-Canada, the Competition Bureau of Canada required Suncor to divest 104 retail sites in Ontario. On December 8, 2009, Suncor entered into an agreement with Husky Energy whereby Suncor agreed to sell 98 sites with expected closing dates commencing in the first half of 2010 as ownership of individual sites is transferred to the purchaser.

While the timeline for the divestment of assets remains flexible, Suncor expects most of the sales to occur during 2010. Divestment proceeds will be used to reduce the company's debt.

 


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