Canada-based Suncor Energy (SU) reported weaker-than-expected third quarter results, hampered by lower commodity prices and higher operating expenses in its oil sands business, partly offset by increased production resulting from the Petro-Canada acquisition. Earnings per share, excluding certain items, came in at 23 Canadian cents (22 cents), below the Zacks Consensus Estimate of 31 cents. In the year-ago period, Suncor earned 87 Canadian cents (83 cents). Revenues were down marginally (by 0.8%) to C$8.4 billion.  
 
Operating Statistics
 
The company reported operating earnings of C$288 million, down 64.4% year over year, while cash flow from operations dropped 49.9% from the prior-year period to C$574 million.
 
Production
 
Upstream production during August and September 2009 averaged 630,600 barrels of oil equivalent per day (BOE/d). Of this, 289,400 BOE/d came from the Petro-Canada acquisition. During the third quarter, volumes from Suncor’s legacy oil sands and natural gas operations averaged 339,900 BOE/d, as against 281,000 BOE/d in the year-ago period.
 
Excluding proportionate production share from the Syncrude joint venture, oil sands volumes rose 24.3% year over year to 305,300 barrels per day (Bbl/d), mainly reflecting improved operational reliability and lack of unplanned maintenance shutdowns.
 
Post acquisition, Suncor holds a 12% share in the Syncrude oil sands joint venture (located near Suncor’s existing oil sands operations in Alberta). Syncrude operations contributed an average 37,400 Bbl/d of sweet crude production for the final two months of the third quarter of 2009.
 
During August and September 2009, Suncor’s natural gas business produced an average 772 million cubic feet equivalent per day (MMcfe/d), of which, 563 MMcfe/d came from the acquisition. Production from the company’s legacy natural gas operations averaged 208 MMcfe/d in the third quarter of 2009, as against to 213 MMcfe/d a year ago. This decrease was on account of production shut-ins and the sale of certain non-core assets in the second quarter of 2009.
 
East Coast Canada production contributed an average 49,600 Bbl/d during the two month period August-September 2009, while volumes from Suncor’s international segment contributed an average 108,600 Bbl/d – both lower than capacity as a result of planned and unplanned maintenance and the tie in of the North Amethyst extension at White Rose.
 
Guidance
 
Looking ahead to the fourth quarter, Suncor guided towards international production in the range of 130,000 – 140,000 BOE/d, while East Coast Canada production is expected to be 60,000 – 65,000 Bbl/d. Natural gas volumes are anticipated to be within 760 – 775 MMcfe/d. For full-year 2009, the company now expects oil sands production of 290,000 – 305,000 Bbl/d, compared to the previous guidance of 300,000 Bbl/d.
 
Plans asset sale to cut acquisition-related debt
 
In 2010, Suncor is targeting asset sale of up to C$4 billion, including a third of its natural gas holdings, as it looks to reduce debt following the Petro-Canada acquisition. Additionally, Suncor intends to offload smaller interests in the North Sea, all of its assets in Trinidad and Tobago as well as a corporate aircraft.
Read the full analyst report on “SU”
Zacks Investment Research