25% larger revenues in Oil Sands in Atabasca Project ( under which are Birch Mountain Limestones and tailings leftover-Sounds like lots of tailing doesn't it?)
canada-stockwatch.com
RE:
Suncor Energy Inc -
Suncor earnings improve in third quarter
Suncor Energy Inc SU
Shares issued 110,495,473 1999-10-18 close $53.1
Tuesday Oct 19 1999
Mr. Rick George reports
Third-quarter highlights
(All financial figures are in Canadian dollars unless noted otherwise.
Higher oil sands sales levels, gains from the sale of non-core assets, higher commodity prices and improved downstream refining margins contributed to improved earnings and cash flow performance for Suncor Energy Inc. for the third quarter of 1999.
Earnings were $74-million (61 cents per common share after dividends of six cents per share on preferred securities), compared with $49-million (44 cents per common share) in the third quarter of 1998. Cash flow from operations for the third quarter was $147-million ($1.22 per common share after a cost of 11 cents per share on preferred securities), down from $170-million ($1.55 per common share) for the third quarter of 1998. The 1998 cash flow included a $32-million income tax refund.
Earnings for the first nine months of 1999 were $125-million ($1 per common share after dividends of 13 cents per share on preferred securities), compared with earnings of $144-million ($1.31 per common share) for the same period in 1998. Cash flow from operations during the first nine months was $369-million ($3.11 per common share after a cost of 23 cents per share on preferred securities), compared with $452-million ($4.11 per common share) in the same period of last year.
Consolidated revenues for the third quarter were $639-million, compared with $531-million in the third quarter of 1998. In the first nine months of 1999 revenues were $1.7-billion, compared with $1.6-billion during the same period last year.
Despite record third quarter production of 101,500 barrels per day at Suncor's Oil Sands facility, total crude oil, natural gas and natural gas liquids production averaged 138,100 barrels of oil equivalent per day, down marginally from 139,000 boe per day in the third quarter of 1998. An unplanned eight-day production outage at Suncor's Oil Sands facility and lower production volumes from exploration and production (E&P) affected total upstream production during the quarter. For the nine-month period, total production averaged 141,000 boe per day, compared with 135,600 boe per day during the same period in 1998.
E&P continued to realize the benefits of the sale of non-core assets, posting a net cash surplus of $96-million for the first nine months of 1999, compared with a net cash deficiency of $85-illion during the same period last year. The sale of non-strategic producing assets contributed to a decline in production volume. Production averaged 36,600 boe per day in the third quarter, compared with 42,100 boe per day for the same quarter last year.
Work on Suncor's $2-billion Project Millennium oil sands expansion continued during the quarter. At the end of the quarter, engineering was approximately 65-per-cent complete and construction was close to 7-per-cent complete, with more than 2,500 engineering and field personnel working on the project.
Sunoco's earnings were $13-million during the third quarter, compared with $8-million in the same period last year. The increase primarily reflects improved refining margins and strong operational performance.
Commissioning activities continued at Suncor Energy's Stuart Oil shale project near Gladstone in Australia. Commissioning is behind schedule, and a review is under way which will help determine when the project will be able to achieve reliable production. A decision as to whether the technology is viable will be made some time next year.
During the quarter, Suncor was named as the worldwide leader in its industry on the new Dow Jones Sustainability Group Index, the first global index that tracks the performance of leading sustainability companies. The principles of sustainable development are environmental protection, economic development and social responsibility.
Suncor focused on growth in third quarter
"The oil price recovery that continued into the third quarter helped restore our earnings momentum, and we continued to make steady progress on our growth projects," said Rick George, president and chief executive officer. "Construction continues on our Oil Sands expansion project, asset sales in our exploration and production business are providing cash to help fuel our growth, and Sunoco is growing its brand strength in the Ontario retail market."
Although oil prices have more than doubled since the beginning of the year, Mr. George says Suncor is not depending on the current price level to be sustained as the company proceeds with its growth plans. "Of course we'll be pleased if prices remain this high for the rest of the year, but we're not counting on it. We continue to have a hedging program in place to protect us from volatility in the commodity markets during this period of high capital spending on our growth projects."
Mr. George says that despite a slower-than-expected startup process at the Stuart Oil shale project in Australia, he remains confident in Suncor's strategic approach to developing this new technology. "Commissioning is behind schedule, but we need to remember that this is truly pioneering work, and therefore calls for some patience and diligence in seeing it through. We have always seen this project as incorporating more risk than other investments being made by the company."
During the quarter Mr. George was named Canada's outstanding chief executive officer of the year for 1999. "This is truly a great honour, and I'm quite humbled by it," says Mr. George. "For the past nine years, I've had the privilege of leading an incredible team of people here at Suncor. I could not have won this award without the dedication and support of our leadership team and employees across this company."
During the quarter the Suncor Energy Foundation approved over $1-million in support to the community of Fort McMurray. The Suncor Energy Foundation plans to donate $625,000 over a five-year period to the Northern Lights Regional Health Authority, and $500,000 over five years to establish a new mine operations training program at Alberta Keyano College. Labour force estimates show that the oil sands industry will require 1,600 heavy equipment operators over the next decade. Suncor alone is expecting to hire about 200 new employees in mine operations over the next three years.
Financial results
Third quarter
Earnings for the third quarter of 1999 were $74-million or 61 cents per common share (after dividends of six cents per share on preferred securities), up from $49-million or 44 cents per common share in the same period last year. Earnings in the third quarter of 1998 included a $7-million favourable income tax refund. Excluding the refund, the $32-million earnings increase in 1999 was mainly due to higher oil sands sales levels, gains from the sale of non-core assets, higher crude oil and natural gas prices, and improved refining margins. These factors were partially offset by higher depreciation charges associated with the increased Oil Sands' production capacity, the impact of an unplanned maintenance outage at Oil Sands and lower E&P sales volumes. Suncor's crude oil hedging program reduced the average price received for its crude oil sales by $3.60 per barrel.
Cash flow from operations for the quarter was $147-million, or $1.22 per common share (after a cost of 11 cents per share on preferred securities), down from $170-million or $1.55 per common share in the third quarter of 1998. During 1998, cash flow from operations included $32-million related to a favourable income tax refund. Excluding the refund, the improvement was primarily due to the same factors affecting earnings, partially offset by an $11-million increase in overburden removal costs.
Nine-month consolidated earnings
For the first nine months of 1999 Suncor posted consolidated earnings of $125-million ($1 per common share after dividends of 13 cents per share on preferred securities), compared with $144-million ($1.31 per common share) in the same period of 1998. Year-to-date earnings in 1998 reflect a favourable $11-million income tax refund. Excluding the refund, the $8-million decrease in 1999 earnings was primarily due to higher depreciation charges associated with increased Oil Sands production capacity, the impact of two unplanned production outages at the Oil Sands operations, lower refined product margins and higher interest charges. These factors were partially offset by higher crude oil and natural gas prices, increased gains from the sale of non-core properties, higher Oil Sands sales volumes and stronger retail gasoline margins. Suncor's crude oil hedging program reduced the price received for its crude oil sales over the same nine-month period by $1.10 per barrel.
Cash flow from operations for the first nine months was $369-million ($3.11 per common share after a cost of 23 cents per share on preferred securities), compared with $452-million ($4.11 per common share) in the same period of 1998. Cash flow from operations for the 1998 period was favourably affected by $36-million from the income tax refund. Excluding the refund, the decrease primarily reflects the same factors affecting earnings, plus the impact of $20-million in higher overburden removal expenditures.
Business unit performance
Oil Sands third-quarter earnings increase by 31 per cent
Oil Sands' earnings were $46-million for the quarter, compared with $35-million in the third quarter of 1998. A sales volume increase of 9 per cent and an increase in crude oil prices of 8 per cent were partly offset by the impact of lost sales and costs associated with an unplanned production outage and higher depreciation (non-cash) charges. Suncor's crude oil hedging program in the quarter reduced the selling price by approximately $3.30 per barrel. Cash flow from operations was $104-million in the third quarter, compared with $86-million in the third quarter of 1998. The increase in cash flow from operations was due to the same factors that influenced earnings, partially offset by increased overburden expenditures.
As noted above, Oil Sands had an unplanned production interruption in its upgrader facility resulting in an eight-day outage. This was the same unit that was taken out of service in the first quarter of this year. The redesign of some of the unit's components during the outage should improve reliability and allow the plant to achieve maximum production. Despite this interruption, Oil Sands posted record third quarter production of 101,500 barrels per day. Oil Sands remains on track to meet its 1999 average production target of 105,000 barrels per day.
Cash operating costs for the third quarter were $12.05 per barrel, compared with $11.05 in 1998. Per-barrel costs rose during the quarter mainly due to lower sales volumes as a result of the production interruption. On a year-to-date basis, cash operating costs are $11.60, compared with $11.50 in 1998.
Work continued on Oil Sands' $2-billion Project Millennium expansion program. At the end of the quarter, engineering was approximately 65-per-cent complete while construction was about 7-per-cent complete. At quarter-end, more than 2,500 engineering and field personnel were working on the project. Major pieces of upgrading units are expected to begin arriving on site in the fourth quarter and most of the mining equipment is on order.
As the quarter ended, TransAlta took over the operations and maintenance of the energy services facilities at Oil Sands. This is part of a long-term agreement to provide Suncor Energy's oil sands operations with a reliable, cost-effective, environmentally responsible source of electricity and steam to meet the demands of its growing operations.
Exploration and production's asset sales boost earnings and cash flow
Suncor's exploration and production (E&P) business earned $20-million in the third quarter, compared with $7-million for the same period last year. The main factor contributing to the increase was a $13-million gain from the sale of non-core properties in its portfolio optimization program. Higher natural gas prices ($2.48 per thousand cubic feet versus $1.90 for the same quarter last year) in the quarter offset lower production volumes to sustain cash flow from operations for the quarter at $39-million.
For the nine-month period just ended, E&P's net cash flow position was $96-million, compared with a net cash deficiency of $85-million for the same period last year, resulting in a positive net improvement of $181-million. The main factors contributing to this improvement were decreases in capital spending and an increase in divestment proceeds from its portfolio optimization program. The objective of the program is to improve the quality of Suncor's natural gas and crude oil asset base and provide positive cash flow to support the progress of other near-term Suncor initiatives.
In the third quarter, production averaged 36,600 boe per day, compared with 42,100 boe per day for the same quarter last year. For the year production is now expected to average 37,700 boe per day, with the 1999 exit rate at similar levels. Property dispositions, reduced capital spending and delays bringing new production on stream contributed to lower production volumes for the third quarter. Property dispositions to date represent production of 3,300 boe per day and 13.5 million boe of proven reserves.
During the quarter, Suncor and OPTI Canada Inc., the Canadian subsidiary of Ormat Industries Ltd., entered into an agreement in which OPTI will test a proprietary new upgrading technology and plans to use production from Suncor's Burnt Lake heavy oil property. Through the agreement, Suncor will gain access to OPTI's upgrading technology. In exchange, OPTI will earn an option on interests in Suncor's Cheecham heavy oil lease and will finance and complete a drilling program on Cheecham to evaluate the properties.
Suncor Energy is making progress on its investigation into the potential of coal bed methane production. During the quarter, the company began an exploratory drilling program of prospective coal beds in British Columbia, Canada. Subsurface coal beds can be a major source of natural gas and a potential carbon dioxide sink for greenhouse gas emissions. Suncor has been evaluating coal bed methane opportunities in North America and Australia since 1998.
Sunoco reports improved earnings as refining margins strengthen
Sunoco's third quarter earnings were $13-million, compared with $8-million in the third quarter of 1998. Cash flow from operations was $37-million, compared with $2- million in the third quarter of 1998. Improved refining margins and continuing strong retail margins were partially offset by losses at Sunoco's energy marketing business.
Refining operations earned $10-million in the third quarter, compared with earnings of $4-million in the comparable quarter of 1998. Refining margins improved during the quarter as supply and demand fundamentals improved in North America.
During the quarter, the refinery achieved ISO 14000 certification, which endorses effective environmental management systems based on international standards. The Sunoco refinery was the first in Canada to become certified and the fourth in North America.
Sunoco's retail marketing earnings were $4-million, compared with $4-million in the third quarter last year. Sunoco's retail business is experiencing continued success with popular ancillary services such as car washes and product merchandising. Sales of these products and services increased 20 per cent, compared with the same period last year. This increase was partially offset by a slight decrease in gasoline volumes due to site closures. Sunoco's Canadian Automobile Association (CAA) loyalty program continues to be attractive to customers as demonstrated by an increasing usage of the card.
Sunoco's energy marketing business, which is in a startup period, recorded a loss of $1-million during the quarter, compared with break-even results in the same period of last year. Sunoco's home energy dealer network continues to expand with 28 dealers in all major Sunoco markets.
Australia update
The Stuart Oil shale project near Gladstone, Australia, continued with its operational testing and commissioning work in the third quarter. Hot commissioning trials have demonstrated the ability to produce oil, but commissioning is behind schedule. A review is under way which will help determine when the project will be able to achieve reliable production. A decision as to whether the technology is viable will be made some time next year.
The mining lease application and Environmental Impact Assessment (EIS) for the second phase of the Stuart project were released during the third quarter, marking the start of the formal public review process.
Y2K project update
The remediation phase of Suncor's Year 2000 project involves the verification of Year 2000 compliance of its critical systems and, if required, the replacement or upgrade of such systems. As of Sept. 30, 1999, the testing of critically interdependent systems was complete, and the remediation of critical information technology systems and critical process control systems was virtually complete.
Suncor is continuing with its clean management program that is designed with the objective of ensuring critical systems remain compliant. Until March 1, 2000, no changes may be made in any of Suncor's Year 2000 compliant systems unless such changes are approved in accordance with an established procedure. In addition, new systems introduced, as part of the company's growth projects must also be verified for Year 2000 compliance as part of this clean management program.
Suncor is continuing to assess the Year 2000 preparedness of its critical third-party business relationships. Suncor has now received responses to its Year 2000 questionnaire from all of its critical third-party business relationships and has met with a majority of such third parties. As the company has no way of ensuring its critical third-party business relationships will be Year 2000 compliant on a timely basis, it will continue to monitor and assess the Year 2000 preparedness of such parties throughout the rest of 1999, through requests for information and where appropriate, further meetings. Where the company has identified high third-party risk for non-compliance, the company's contingency plans have been refined to address alternative arrangements to prevent or mitigate disruption to operations. The company relies on third-party suppliers of power, communications, steam, pipeline transportation and other key products and services for the efficient and uninterrupted conduct of its operations. However, the company believes it has contingency plans to mitigate disruptions to operations arising from a limited duration loss of such critical products and services. Refinement and testing of the company's contingency plans are expected to be continuing throughout 1999, particularly as additional and better information on third-party Year 2000 preparedness is acquired. The Year 2000 project team has conducted a companywide Year 2000 mock exercise designed to test certain of the company's contingency plans. In addition, Year 2000 mock exercises have also been conducted at the business unit level. As a result of these tests, some minor enhancements have been made to the contingency plans.
The total cost to the company of its Year 2000 project continues to be estimated at $27-million, and approximately $23-million has been spent to date. Suncor believes most of its continuing Year 2000 expenditures will be related to execution of the company's clean management program, implementing contingency plans and project management office costs.
This Year 2000 update should be read in conjunction with Suncor's Year 2000 disclosure in its 1998 annual report, which contains further information about the company's Year 2000 project, the risk factors relating to the Year 2000 challenge, and cautionary remarks regarding forward-looking statements.
WARNING: The company relies on litigation protection for "forward-looking" statements.
CONSOLIDATED STATEMENT OF EARNINGS
Third quarter results
(in millions of dollars)
1999 1998
Revenues $639 $531
---- ----
Expenses
Purchases of
crude oil and
products 145 100
Operating, selling
and general 202 179
Exploration 8 6
Royalties 26 20
Taxes other than
income taxes 84 84
Depreciation,
depletion and
amortization 787 67
Gain on disposal
of assets (25) (1)
Interest 5 5
---- ----
523 460
---- ----
Provision for
income taxes
Current
Income tax on
earnings 22 1
Income tax refund - (12)
---- ----
22 (11)
---- ----
Deferred
Income tax on
earnings 20 28
Income tax refund - 5
---- ----
20 33
---- ----
42 22
---- ----
Net earnings $ 74 $ 49
==== ====
Per common share
Net earnings (cents) 61 44
Cash dividends (cents) 17 17
CONSOLIDATED STATEMENT OF EARNINGS
Nine months ended Sept. 30
(in millions of dollars)
1999 1998
Revenues $1,672 $1,572
------ ------
Expenses
Purchases of
crude oil and
products 355 284
Operating, selling
and general 553 528
Exploration 28 28
Royalties 62 62
Taxes other than
income taxes 246 242
Depreciation,
depletion and
amortization 231 194
Gain on disposal
of assets (34) (7)
Interest 24 16
------ ------
1,465 1,347
------ ------
Earnings before
income taxes 207 225
------ ------
Provision for
income taxes
Current
Income tax on
earnings 33 10
Income tax refund - (16)
------ ------
33 (6)
------ ------
Deferred
Income tax on
earnings 49 82
Income tax refund - 5
------ ------
49 87
------ ------
82 81
------ ------
Net earnings $ 125 $ 144
====== ======
Per common share
Net earnings (dollars) 1.00 1.31
Cash dividends (cents) 51 51
(c) Copyright 1999 Canjex Publishing Ltd. canada-stockwatch.com
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