Suncor cash flow soothes investor concerns over Syncrude outage

By Kevin Orland on 7/26/2018

CALGARY (Bloomberg) -- Suncor Energy Inc. managed to largely allay investors’ concerns over the most recent production problem at its massive Syncrude facility by highlighting its increasing cash flow and returning more of those funds to shareholders.

Even after shutting Syncrude last month because of a power failure, Suncor generated C$2.45 billion ($1.87 billion) in cash from operations last quarter, up 46% from a year earlier. Canada’s largest oil producer by market capitalization also boosted its share buyback program by 40% to C$3 billion.

The results show Suncor’s investments to increase production in oil prices are starting to pay off. After years of building the projects, Suncor is now ramping up output at its Fort Hills oil-sands mine and the Hebron offshore project. Even after reducing the top end of its production forecast to 750,000 bpd on Wednesday, the outlook still represents a 9.4% increase from last year’s output.

“Despite some disappointing setbacks operationally this quarter, Suncor nevertheless delivered another solid quarter of financial performance,” Chris Cox, an analyst at Raymond James, said in a note.

Suncor rose 1.7% to C$54.01 at 10:55 a.m. in Toronto. The shares were up 15% this year through Wednesday, compared with a 2.5% gain for the S&P/TSX energy index.

Transformer trip

Suncor has been grappling with the Syncrude outage since late June, when a transformer trip knocked out power to the 350,000-bpd plant, one of the biggest of its kind in the world. The company returned part of the facility to service this month, and says a second section will be back online in August, with the plant returning to full capacity by mid-September.

Output this year will be 740,000 to 750,000 boed, the Calgary-based company said Wednesday. Suncor was forecasting production of 740,000 to 780,000 bbl as of May 1. Output from Syncrude will be about 60% to 70% of capacity for August, Suncor has said.

“We want to reiterate our belief in Syncrude’s long‑term potential and ability to achieve sustained reliability improvements, despite our disappointment with recent operational performance,” CEO Steve Williams said in a statement. “From experience, we know that long‑term reliability is a journey and we are working with the owners to advance strategic initiatives in order to achieve our reliability and cost goals.”

The most recent outage is just the latest mishap at Canada’s second-oldest oil-sands mine, which started operation in the mid-1970s and has faced reliability issues in recent years. The plant in May underwent scheduled maintenance that took longer than expected.

Suncor owns about 59% of Syncrude, and Imperial Oil Ltd. owns 25%. The remainder of the operation is owned by China Petroleum & Chemical Corp. and CNOOC Ltd.’s Nexen.

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