Canada's biggest energy firm and the largest oil sands outfit,
Suncor Energy Inc.
(
SU
) reported mixed second quarter 2012 earnings, reflecting volume
growth and higher refinery margins along with a favorable
production mix. These were partially offset by operational shutdown
at Syria and steeper expenses.
Earnings per share, excluding certain items, came in at 81 Canadian
cents (80 US cents) in the second quarter, surpassing the Zacks
Consensus Estimate of 75 cents. Comparing year over year, the
results improved 30.6% from 62 Canadian cents earned in the
prior-year quarter.
In the reported quarter, total revenue of C$9.72 billion ($9.62
billion) escalated 4.2% from the year-ago level but lagged our
expectation by 5.8%.
Quarterly operating earnings of C$1.26 billion were up from C$980
million a year ago, while cash flow from operations increased to
C$2.34 billion from C$1.98 billion in the second quarter of 2011.
Production
Upstream production during the quarter averaged 542,400 barrels of
oil equivalent per day (BOE/d), up from the second quarter 2011
level of 460,000 BOE/d, mainly on the ramp up of activities at
various units and steady progress with projects.
Excluding proportionate production share from the Syncrude joint
venture, oil sands volumes were 309,200 barrels per day (Bbl/d),
higher than 243,400 Bbl/d recorded in the prior-year quarter. The
current quarter results were positively influenced by last year's
planned maintenance works at certain units and higher volumes from
Firebag.
Syncrude operations registered a 15.4% year-over-year decline in
production to 28,600 Bbl/d in the quarter, due to maintenance
activities at the facility.
Suncor's Exploration and Production segment (consisting of
International and Offshore and Natural Gas segments) produced
204,600 BOE/d, as against 182,800 BOE/d in the prior-year quarter.
The resumption of Libyan operations along with better reliability
at Buzzard enhanced the performance of this segment.
Product Sales
The company's Refining and Marketing segment generated total
refined product sales of 87,500 cubic meters per day, up 6.4% year
over year. The result was aided by refineries running at full
capacity in Western North America.
Balance Sheet & Capital Expenditure
As of June 30, 2012, Suncor had cash and cash equivalents of C$5.17
billion and total long-term debt (including current portions) of
C$10.02 billion. The debt-to-capitalization ratio was approximately
20.4%. The company incurred C$1.6 billion in capital expenditure in
the quarter.
Guidance
For 2012, Suncor guided total production of 540,000-580,000 Boe/d,
with East Coast Canada production expected in the range of
50,000-55,000 Bbl/d. International volumes are estimated to range
between 77,000 Boe/d and 85,000 Boe/d, while production at North
American Onshore will be in the band of 310-340 million cubic feet
equivalent per day.
The company expects oil sands production of 325,000-345,000 Bbl/d
and projects Syncrude production at approximately 36,000-38,000
Bbl/d.
Suncor targets capital spending of almost $7.50 billion for 2012,
of which 48% will be expended towards growth projects.
Our Recommendation
We are maintaining a long-term Neutral recommendation on the stock.
Suncor currently retains a Zacks #3 Rank, which translates into a
short-term Hold rating.
In our opinion, Suncor possesses an impressive portfolio of growth
opportunities, a unique asset base and high return potential over
the long run. Additionally, given our bullish outlook for the
medium-term oil price scenario, we think Suncor is nicely
positioned to benefit from its leverage to commodity prices.
However, we remain worried about Suncor's high debt level and
significant capital expenditure requirements. We also believe that
operational and project execution risks will keep the stock under
pressure in the coming months.
Another prominent Canadian energy firm
Canadian Natural Resources
(
CNQ
) will report its second quarter results on August 9.
CDN NTRL RSRCS (CNQ): Free Stock Analysis
Report
SUNCOR ENERGY (SU): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment
Research