EARNINGS / Suncor Energy Inc. Unaudited 1997 Results
SUNCOR HAS FIFTH CONSECUTIVE YEAR OF PROFITABLE GROWTH - 1997 A YEAR
OF IMPROVED PERFORMANCE AND IMPLEMENTATION OF GROWTH PLANS
CALGARY, Jan. 19 /CNW/ - Suncor Energy Inc. today announced unaudited
consolidated earnings for 1997 of $223 million ($2.04 per share), up 19% from
1996 earnings of $187 million ($1.71 per share). Cash flow from operations for
the year, at $575 million ($5.24 per share), was 17% higher than the $491
million ($4.49 per share) reported in 1996. Suncor's overall oil and gas
production averaged a record 119,700 barrels of oil equivalent (BOE) per day,
up 3% from last year's production of 116,500 BOE per day.
''We faced a tough challenge in 1997 to beat last year's excellent
results, but once again, my colleagues at Suncor delivered the goods,'' said
president and chief executive officer Richard George. ''Our Oil Sands business
set an all-time production record despite a one-month planned maintenance
shutdown, our Exploration and Production unit continued to add to our proven
reserve base at a low cost, and Sunoco is well positioned for long-term
growth. We now have our fifth consecutive year of profitable growth under our
belts, with a strong future ahead.''
George said Suncor is well positioned for 1998 and the company's
long-term growth plans are proceeding on schedule. ''Although an extended
period of low oil prices would affect the Canadian energy industry, including
Suncor, we are well-equipped to deal with volatile commodity prices,'' said
George. Suncor has already pre-sold about 30% of 1998 production at CDN$28
per barrel, as well as about 20% of 1999 production at a similar price. In
addition, George points to Suncor's status as an integrated company: ''The
downstream side of our business tends to act as a hedge against price
volatility,'' said George. ''And when you consider that we plan to increase
our overall production by about 15% in 1998 and that unit costs in our Oil
Sands business are expected to be lower, I'm optimistic that 1998 should be
another good year for Suncor. In fact, despite potentially lower commodity
prices, we will be working hard to make 1998 Suncor's sixth consecutive year
of cash flow, earnings and production improvement.''
Suncor's capital and exploration spending rose to $847 million in 1997,
up from $563 million in 1996. ''We expect to invest more than $1 billion in
1998, and over the next four years we are looking at over $4 billion in
growth-related capital programs,'' said George.
George says Suncor has set a combined oil sands and conventional oil and
gas production target of 135,000 - 140,000 BOE per day for 1998 -- an increase
of about 15% compared with 1997 levels. Oil Sands production is targeted at
90,000 - 95,000 barrels per day at a cash cost per barrel of approximately
$13.25.
Revenue for 1997 was $2.2 billion compared to $2.1 billion for 1996.
Suncor's 1997 consolidated earnings improvement over 1996 was primarily
due to lower royalties resulting from strategic capital investment and
environmental spending in the oil sands operation, higher margins in the
downstream business and higher natural gas prices and volumes. In addition
there was an $11 million improvement in 1997 due to an income tax refund.
These favourable factors were partially offset by higher expenditures
associated with increased volumes, higher borrowing costs, growth initiatives
and increased exploration expenses.
OPERATING HIGHLIGHTS OF 1997
During the year, Suncor's Oil Sands business continued to expand rapidly,
posting an all-time production record of 79,400 barrels per day, exceeding
last year's record of 77,600 barrels per day despite a one-month planned
maintenance shutdown. Oil Sand's daily production following completion of the
maintenance shutdown has averaged 88,100 barrels per day. Cash costs for the
year were $14.75 per barrel, down from $15.75 in 1996. The development of the
Steepbank mine advanced significantly with the completion of the Suncor Bridge
linking the mine site to the company's upgrading and extraction facilities.
The new mine and fixed plant expansion are expected to come on stream near the
end of 1998, boosting production to 105,000 barrels per day by 1999. In 1997
the company also announced the $2.2 billion Project Millennium. This
expansion, which is subject to regulatory approval, is expected to more than
double Suncor's oil sands production to 210,000 barrels per day by 2002.
Suncor's Exploration and Production business achieved a reserve
replacement ratio of 200% of its production with an average finding and
development (F&D) cost for the year of $6.90 per BOE of proven reserves. These
results bring Suncor's three-year average finding and development cost to
$6.25 per BOE, and its three-year reserve replacement ratio to 220% of
production. This is expected to once again produce a top quartile F&D
performance in the Canadian E&P industry.
During the year Sunoco expanded the marketing of environmentally
friendlier ethanol-enhanced gasolines to all of its branded retail network.
Sunoco also broadened its energy offering by entering the natural gas
marketing business. Sunoco's Sarnia refinery is aggressively pursuing its
program to increase overall effectiveness and position it in the top quartile
competitiveness of North American refineries by 2000.
Construction began on Suncor's first international venture, the Stuart
Oil Shale Project. The 4,500 barrel per day demonstration plant is expected to
begin production by the end of 1999.
FOURTH QUARTER RESULTS
Suncor's earnings for the fourth quarter were $72 million ($0.66 per
share), up 53% from $47 million ($0.43 per share) during the same period in
1996. Cash flow from operations was $184 million ($1.67 per share), up from
$154 million ($1.41 per share) last year. The increase in earnings was due to
higher upstream and downstream sales volumes, lower royalties, higher natural
gas prices, higher retail margins and a tax refund of $11 million relating to
prior periods. These favourable factors were partially offset by lower crude
oil prices and refining margins and higher growth-related operating expenses.
Revenue in the quarter was $565 million, down from $573 million in the
same period of 1996.
Oil Sands Earnings Up on Record Sales Volumes
Suncor's Oil Sands earnings rose to $58 million, up from fourth quarter
1996 earnings of $39 million. Cash costs during the quarter were $13 per
barrel, compared with $16.50 per barrel during the same period in 1996.
Despite a planned month-long maintenance shutdown during 1997, Oil Sands was
able to set production records for the year. During the fourth quarter daily
production averaged 94,300 barrels per day.
Exploration and Production Increases Oil and Gas Production
Exploration and Production reported $7 million in earnings for the
quarter, compared with $8 million in the same period of 1996. Record fourth
quarter production of 42,100 BOE per day brought Exploration and Production's
average production for the year to 40,300 BOE per day. This result was short
of the 1997 production target of 42,800 BOE per day due to a combination of
factors affecting the oil and gas industry in Western Canada, including a
shortage of available rigs and poor weather conditions in the first half of
1997.
Production from the first phase of Suncor's Burnt Lake heavy oil project
began in 1997. The test wells produced an average of 1,000 barrels per day
during the quarter. The company is optimistic that the technology being
tested at this pilot project has commercial potential. During the quarter,
Suncor invested $16 million in additional heavy oil leases in the Firebag
area, near Suncor's Fort McMurray Oil Sands facilities. This is part of the
company's long-term strategy to leverage Suncor's existing assets to
profitably develop the company's heavy oil properties.
Sunoco Quarterly Earnings Decline
Operationally Sunoco had earnings of $9 million in the fourth quarter,
but after provision for the costs associated with the realignment at the
Sarnia refinery and start up costs in the natural gas marketing business,
Sunoco broke even. This compares to earnings of $12 million during the same
period in 1996.
Sunoco's refining business had operational earnings of $6 million in the
fourth quarter, but after a realignment provision for the Sarnia refinery, net
earnings were $2 million compared with earnings of $11 million in the fourth
quarter of 1996. Sunoco's retail marketing businesses had earnings of $3
million compared with $1 million in the same period last year.
In the fourth quarter, Sunoco successfully completed the introduction of
its environmentally friendlier ethanol fuels to all of its service stations
across Ontario. This now makes Sunoco Canada's largest retailer of
ethanol-blended gasolines. During the quarter Sunoco also introduced a
province wide loyalty program with the Canadian Automobile Association (CAA)
and began piloting a strategy designed to broaden Sunoco's offering to
consumers and increase sales of convenience products.
Suncor Energy Inc. and its subsidiaries operate an integrated energy
business that includes an oil sands plant in Fort McMurray, Alberta, an
exploration and production business in Western Canada, a refining and
marketing operation in Ontario and Quebec and an oil shale development project
in Queensland, Australia. Suncor common shares are listed on the Toronto,
Montreal, Alberta, Vancouver and New York stock exchanges.
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