EARNINGS / Suncor Energy 6 Months Report
SUNCOR ENERGY PERFORMANCE CONTINUES TO IMPROVE
Production rising, unit costs down, expansion plans on track
CALGARY, July 16 /CNW/ -
Second Quarter Highlights
- Despite continuing low oil prices, Suncor Energy's earnings and cash
flow for the first six months of 1998 exceeded the company's
performance during the same period last year. Earnings for the first
half of 1998 were $95 million ($0.87 per share) compared with $88
million ($0.80 per share) during the first half of 1997, and cash flow
from operations for the first six months was $282 million ($2.56 per
share), compared with $230 million ($2.10 per share) during the same
period in 1997.
- During the quarter, the application for approval to proceed with
Suncor's $2.2 billion Project Millennium Oil Sands expansion was filed
with the Alberta Energy and Utilities Board and Alberta Environmental
Protection.
- Second quarter earnings were $45 million ($0.41 per share) compared
with 1997 second quarter results of $28 million ($0.26 per share).
Cash flow from operations rose to $138 million ($1.25 per share)
during the quarter, compared with $81 million ($0.74 per share) in the
second quarter of last year.
- Total crude oil, natural gas and natural gas liquids production
increased during the second quarter, averaging 132,700 barrels of oil
equivalent (BOE) per day compared with 94,500 BOE per day in the
second quarter of 1997. This increase was due primarily to the Oil
Sands planned maintenance shutdown in 1997 that reduced production
during the second quarter of last year. For the first half of 1998,
total upstream production averaged 133,900 BOE per day, up from
the 108,000 average BOE per day achieved in the first six months of
1997.
- Oil Sands set a second quarter production record, averaging 90,800
barrels per day.
- Second quarter average daily production for Suncor's Exploration and
Production business was 41,900 BOE per day, a best-ever second quarter
and an eight percent increase from the 38,900 BOE per day average in
the same period last year.
- In Suncor Energy's downstream business, Sunoco's retail marketing
business continued to report strong volumes and margins. Sunoco had
its best second quarter earnings in over ten years, posting $16
million, up from $15 million in the second quarter of 1997.
- Suncor Energy's Stuart Oil Shale Project continues on schedule and on
budget. The project is now over 50% complete.
- Revenue for the quarter was $498 million, compared to $483 million
during the same period in 1997. Year-to-date revenue was $1,041
million, compared to $1,054 million during the first six months of
1997.
Steady Second Quarter Keeps Growth Plans on Target
''I am pleased that our overall performance in the second quarter
continues to reflect the operational strength we have built up in our core
businesses,'' said Rick George, Suncor Energy's president and chief executive
officer.
George said increasing production, falling unit costs, plus the company's
crude oil hedging program, which has about 30% of 1998 production pre-sold at
$20 (US) per barrel ($28 Cdn), continue to provide the company some protection
from weak commodity prices.
He added that second quarter production records put Suncor Energy in a
position to continue with its ambitious plans for future growth. ''We are in a
tough environment right now, but our record so far this year shows that we can
weather a period of low oil prices. We're in this business for the long term,
and we remain as committed as ever to our growth plans.''
Financial Results
Second Quarter
Earnings in the second quarter were $45 million, or $0.41 per share,
compared to $28 million, or $0.26 per share in the same period last year.
Excluding a $4 million income tax refund, the increase in earnings to $41
million in 1998 was primarily the result of an increase in upstream sales
volumes, higher natural gas prices and downstream margins. Partially
offsetting these favorable factors were lower crude oil commodity prices,
higher volume-related expenses and the 1997 expiration of an environmental
royalty credit program. The negative effect of lower crude prices was
partially offset by the company's hedging program and a weaker Canadian
dollar.
Cash flow from operations during the second quarter was $138 million, or
$1.25 per share, compared with $81 million, or $0.74 per share in the second
quarter of 1997. The increase primarily reflects the 40% increase in upstream
sales volumes and the reduced cash taxes due to the significant investment
programs underway across the company.
Six Months Consolidated
For the first six months of 1998 Suncor Energy posted consolidated
earnings of $95 million ($0.87 per share), compared with $88 million ($0.80
per share) over the same period in 1997. Excluding the above noted income tax
refund, the increase in earnings to $91 million in 1998 compared to $88
million in 1997 was primarily due to the same factors that resulted in the
increase in quarterly earnings.
Cash flow from operations for the first six months was $282 million
($2.56 per share), compared to $230 million ($2.10 per share) in the first
half of 1997. The increase primarily reflects the 24% increase in upstream
sales volumes and the reduced cash taxes for the reason noted above.
Business Unit Performance
Oil Sands
Oil Sands posted its best-ever second quarter production, averaging
90,800 barrels per day. This was substantially higher than 1997's second
quarter production of 55,600 barrels per day, which was lower due to a planned
30-day maintenance shutdown.
Oil Sands earnings were $30 million in the second quarter, compared with
$16 million in the second quarter of 1997. The increase primarily reflects the
higher production level, which was partially offset by lower commodity prices
and the expiration of an environmental royalty credit program.
Cash flow from operations was $74 million during the period, compared
with $30 million in 1997. The increase was due to the same factors that
affected earnings.
Cash costs were $13.50 per barrel during the second quarter. Oil Sands
continues to target an average 1998 cash cost per barrel of $13.25.
Commissioning of the fixed plant expansion began during April and the new
upgrading vacuum unit began test processing of bitumen. During the third
quarter, when the new Steepbank Mine is scheduled to come on stream,
additional bitumen for the fixed plant expansion is expected to increase
production. Oil Sands production is targeted to reach a new high of 105,000
barrels per day by year end.
During the quarter, Suncor Energy moved one step closer on Project
Millennium with the submission of its application to regulatory authorities
for approval to proceed with the currently estimated $2.2 billion expansion.
The application outlines the construction, operation and reclamation plans for
the project. Regulatory and Board of Directors approval is required before
construction can begin.
On July 2 an employee of a sub-contractor working on Suncor Energy's
Steepbank Mine expansion project was killed in a fall. A full investigation
into the accident is under way by the contractors and sub-contractors
involved, Alberta Labor's Occupational Health and Safety department, and
Suncor Energy. ''We are very saddened by this accident,'' said Rick George.
''Our hearts go out to the family and friends of the man who died. Safety is a
top priority at all our facilities.''
Suncor Energy signed a sales agreement with Sumitomo Canada Ltd. and Ube
Industries Ltd. to provide one million tonnes of petroleum coke over the next
five years for the production of fertilizer. The sale reflects Suncor's
strategy to find innovative, cost-effective and environmentally responsible
ways of maximizing value from its by-products.
As part of a continuous effort to improve its environmental practices,
Suncor Energy made boiler modifications to the first of three coke-fired
boilers at Oil Sands last year. A review indicated a 40 % reduction in
nitrogen oxides (NOx) emitted into the air. These emissions are associated
with health and air quality concerns. The same modifications are planned for
the remaining two boilers to achieve an overall 40 % reduction. These
emissions cuts are part of Suncor Energy's 1996 voluntary reduction agreement
with Alberta Environmental Protection and, when completed, are designed to
achieve reduction levels of twice the original target.
Exploration and Production
Earnings for Suncor Energy's Exploration and Production (E&P) business
for the second quarter in 1998 were $4 million compared with $3 million in the
same quarter last year. The impact of low crude oil and natural gas liquids
prices was more than offset by higher natural gas prices and higher production
levels for the quarter.
The current and forward selling price for natural gas remains strong. As
part of E&P's ongoing hedging program 45 mcf/day of natural gas production has
been hedged for the 1999 gas contract year (November 98 to October 99) at an
average price of $2.67 per mcf.
E&P's operating cash flow increased 16 per cent, rising to $36 million
from $31 million for the same quarter last year. The increased cash flow is a
result of higher natural gas prices and increased production volumes.
E&P achieved its best ever second quarter production, which rose to
41,900 BOE per day, an 8% increase over the 38,900 BOE per day in the same
quarter last year. E&P is well positioned, based on a strong drilling,
facilities construction, and well tie-in program in the first half of the
year, to achieve the production target of an average of over 45,000 BOE per
day for the year.
Capital and exploration expenditures for E&P increased to $58 million
during the second quarter compared with $42 million in the same period last
year, reflecting a program designed to help attain E&P's production and
reserve targets. The increase in capital and exploration expenditures offset
the higher operating cash flow and raised the net cash deficiency for the
first half of 1998 to $73 million compared with $21 million during the same
period last year. The strong forward market for natural gas, anticipated
production growth for the last half of 1998, and an ongoing portfolio
optimization program are expected to improve E&P's net cash flow position in
the last half of 1998. E&P continues to have a goal of funding its capital
program from its own cash flow over the next three year period.
Suncor Energy's heavy oil pilot plant in Burnt Lake continued reliable
production with Suncor's share increasing to an average of 1,400 BOE per day
in the second quarter.
In line with its portfolio optimization program, Suncor Energy's proceeds
from property dispositions in the quarter were $1 million, bringing its
year-to-date proceeds to $7 million. It is anticipated that proceeds from
property dispositions in the last half of 1998 will be significantly higher.
The objective of this ongoing program is to extract full value for the sale
of non-core properties and to reinvest the proceeds in exploration, production
and acquisition of strategic properties.
Sunoco
Sunoco had its best second quarter earnings in over ten years, posting
$16 million compared with $15 million in the second quarter of 1997. Cash
flow from operations in the quarter was $39 million compared to $36 million in
the same period last year.
Refining earnings were $11 million in the second quarter compared with
$12 million in the same quarter of 1997. The decline is mainly due to higher
refining costs and lower volumes. Partially offsetting these factors are
somewhat higher margins.
Sunoco's retail marketing financial performance continued to improve,
with earnings of $5 million compared with $3 million in the second quarter of
last year and break-even results in the second quarter of 1996. The
improvement over 1997 was mainly due to stronger retail gasoline volumes and
margins and revenues from non-petroleum products.
The increase in Sunoco branded retail marketing volume is partially
driven by Sunoco's loyalty program developed with the Canadian Automobile
Association (CAA). Sunoco service stations are reporting an increasing number
of CAA members taking advantage of this program, which enables them to save on
their annual membership.
During the quarter Sunoco opened its second Fleet Fuels Cardlock site in
Concord, Ontario. Four new cardlocks are planned to be opened over the balance
of the year. These sites are self-serve fuel outlets for commercial truckers,
and allow Sunoco to sell more of its diesel production through its own
network.
Sunoco, together with TransAlta Energy Corporation and six other major
power consumers in the Sarnia area, announced plans to participate in the
largest co-generation project in Canada. If the project proceeds, it will
provide low-cost thermal and electrical power to the Sarnia region, including
Sunoco's refinery operations, potentially as soon as 2001.
Stuart Oil Shale Project Remains on Schedule
The Stuart Oil Shale pilot project is over 50% complete, and is on
schedule and on budget. Engineering work is finished, and procurement work is
about 65% complete. Construction of the wharf, which will be used for shipping
oil products from the plant, is also well under way. The first section of the
plant's Alberta Taciuk Processor, which is being fabricated in Spain, is
expected to arrive in Australia in August of this year. Suncor continues to
target the first half of 1999 for commissioning of the plant with production
expected by the end of that year.
Suncor Energy is a Canadian integrated energy company operating an oil
sands plant in Fort McMurray, Alberta; a conventional 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 for trading on the Toronto,
Montreal and New York Stock Exchanges (symbol SU). For more information about
Suncor Energy, visit our website at www.suncor.com.
|
