Canada's biggest energy firm and the largest oil sands outfit,
Suncor Energy Inc.
) reported in line first quarter 2012 earnings, reflecting higher
average upstream price realizations and reduced exploration costs,
offset by operational disturbances at various
Earnings per share, excluding certain items, came in at 85
Canadian cents (85 US cents) in the first quarter, in line with the
Zacks Consensus Estimate. Comparing year over year, the results
dropped 9.6% from 94 Canadian cents earned in the prior-year
In the reported quarter, total revenue of C$9.76 billion ($9.74
billion) escalated 7.5% from the year-ago level but lagged our
expectation by 9.0%.
Quarterly operating earnings of C$1.33 billion were down from
C$1.48 billion a year ago, while cash flow from operations went up
to C$2.42 billion in the reported quarter from C$2.39 billion in
the first quarter of 2011.
Upstream production during the quarter averaged 562,300 barrels
of oil equivalent per day (BOE/d), down from the first quarter 2011
level of 601,300 BOE/d, mainly on the disposition of non-core
assets throughout 2011, operational interruptions at Syncrude and
production freeze at Syria.
Excluding proportionate production share from the Syncrude joint
venture, oil sands volumes were 305,700 barrels per day (Bbl/d),
lower than 322,100 Bbl/d recorded in the prior-year quarter. The
current quarter results were impacted by the disruptions at
Syncrude operations registered an 8.1% year-over-year decline in
production to 35,400 Bbl/d in the quarter, due to outages in
operations at a coker unit.
Suncor's newly formed Exploration and Production segment
(consisting of International and Offshore and Natural Gas segments)
produced 221,200 BOE/d, as against 240,700 BOE/d in the prior-year
quarter. The sale of non-core assets and stalled activities in
Syria resulted in the year-over-year decline.
The company's Refining and Marketing segment generated total
refined product sales of 80,100 cubic meters per day, down 2.3%
year over year. The drop was due to weak demand in eastern North
Balance Sheet & Capital Expenditure
As of March 31, 2012, Suncor had cash and cash equivalents of
C$4.65 billion and total long-term debt (including current
portions) of C$9.86 billion. The debt-to-capitalization ratio was
approximately 19.9%. The company incurred C$1.5 billion in capital
expenditure in the quarter.
Suncor announced an increased quarterly dividend rate of 13
Canadian cents per share (amounting to 52 Canadian cents on an
annualized basis), reflecting a growth of 18.2% from the prior
level. The dividend will be paid on June 25, 2012, to shareholders
as of business on June 4.
For 2012, Suncor guided total production of 530,000-580,000
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 67,000 Boe/d and 75,000 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 325,000-355,000
Bbl/d and projects Syncrude production at approximately
Suncor targets capital spending of almost $7.50 billion for
2012, of which 48% will be expended on growth projects.
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 is one of the best positioned companies
in the energy space given its access to abundant resources, rich
operating experience and technical know-how. With a large portfolio
of growth opportunities, unique asset base and high return
potential for the long run, the company has a competitive edge over
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
) will report its first quarter results on May 3, 2012.
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SUNCOR ENERGY (
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