Suncor Energy financial results for second quarter reflect reduced production
Long-term growth outlook positive as company makes significant progress
on oil sands fire rebuild and expansion projects
All financial figures are unaudited and in Canadian dollars unless noted
otherwise. Certain prior period amounts have been restated to conform to
the current year's presentation. Certain financial measures referred to
in this release are not prescribed by generally accepted accounting
principles (GAAP). For a description of these measures, see "Non GAAP
Financial Measures" in Suncor's 2005 second quarter management's
discussion and analysis. This document makes reference to barrels of oil
equivalent (boe). A boe conversion ratio of six thousand cubic feet of
natural gas: one barrel of crude oil is based on an energy equivalency
conversion method primarily applicable at the burner tip and does not
represent a value equivalency at the wellhead. Accordingly, boe measures
may be misleading, particularly if used in isolation. Base operations
refer to oil sands mining and upgrading operations.
CALGARY, July 27 /PRNewswire-FirstCall/ - Suncor Energy Inc. today
reported second quarter 2005 net earnings of $112 million ($0.24 per common
share), compared to $202 million ($0.44 per common share) in the second
quarter of 2004. Excluding the effects of unrealized foreign exchange losses
on the company's U.S. dollar denominated long-term debt, 2005 second quarter
net earnings were $125 million ($0.27 per common share), compared to
$227 million ($0.50 per common share) in 2004 second quarter. Cash flow from
operations was $305 million in the quarter, compared to $490 million in the
second quarter of 2004.
The decrease in earnings and cash flow was primarily due to lower
production rates at Suncor's oil sands facility, which was damaged by fire
last January. This decrease was partially offset by higher commodity prices,
higher refining margins and sales volumes in Suncor's U.S. downstream
operations, fire insurance proceeds and lower net financing expenses.
Net earnings for the first six months of 2005 were $210 million ($0.46
per common share), compared to $418 million ($0.92 per common share) for the
same period in 2004. Cash flow from operations for the first six months of
2005 was $599 million, compared to $904 million in 2004.
Company-wide, Suncor's total upstream production averaged 160,600 barrels
of oil equivalent (boe) per day during the second quarter, compared to
264,000 boe per day in the second quarter of 2004. Oil sands production during
the quarter averaged 128,200 barrels per day (bpd), including 8,700 bpd of
in-situ bitumen production. This compares to the second quarter of 2004 when
production averaged 225,900 bpd, including 15,100 bpd of in-situ bitumen
production. Natural gas production in the second quarter of 2005 was
175 million cubic feet (mmcf) per day, compared to second quarter 2004
production of 209 mmcf per day.
During the quarter, Suncor made significant progress in rebuilding
portions of the oil sands plant damaged by the January fire and expects to
return to full production capacity of 225,000 bpd in the third quarter. Major
repairs are complete and the remainder of the reconstruction effort is now
focused on replacing piping and electrical systems to support operations.
Planned maintenance, which had been originally scheduled for September, was
brought ahead and is near completion.
"We're looking forward to putting this short-term production setback
behind us and we're on target to have recovery work completed in September,"
said Rick George, president and chief executive officer.
Following completion of the fire rebuild, Suncor expects to commission
new expansion projects at the oil sands plant and increase production capacity
to 260,000 bpd by year end. Additional work to increase Suncor's oil sands
production to 350,000 bpd in 2008 remains on schedule and on budget.
"Suncor's oil sands team has done an exceptional job to put us back on
track to meet our expansion goals," said George. "We expect a strong finish to
the year and reliable, strong production during 2006."
Downstream plans to support future growth in oil sands were also advanced
in the second quarter with the acquisition of the Colorado Refining Company,
an indirect wholly-owned subsidiary of Valero Energy Corporation. The
acquisition increased Suncor's U.S. refining capacity to approximately 90,000
bpd. During the second quarter, Suncor's U.S. downstream business generated
refining margins of 9.5 cents per litre (cpl), compared to 9.0 cpl during the
second quarter of 2004. Retail margins averaged 4.3 cpl in the second quarter
of 2005, compared to 6.2 cpl the year before.
In the company's Canadian downstream operations, Suncor generated
refining margins of 7.3 cpl in the second quarter of 2005, compared to 7.4 cpl
during the second quarter of 2004. Retail margins were 3.8 cpl during the
second quarter of 2005, compared to 4.3 cpl the year before. Also during the
quarter, Suncor received regulatory approval to construct an estimated
$120 million ethanol facility near its Sarnia, Ontario refinery. The facility
is expected to produce 200 million litres of ethanol annually when completed
in 2006.
As Suncor invests for future growth, prudent debt management remains a
priority. At the end of the second quarter, the company's net debt was
$2.9 billion. This is expected to increase as Suncor continues to fund growth
during a period of reduced cash flow, primarily as a result of the January
fire at oil sands. Suncor expects insurance proceeds will substantially
mitigate impacts to the company's balance sheet and, as insurance settlements
are reached, the majority of proceeds are planned to be used to reduce debt.
OUTLOOK FOR 2005
Suncor's Outlook provides management's targets for 2005 in certain key
areas of the company's business. Outlook forecasts are subject to change.
Oil Sands
As a result of the January fire at the company's oil sands facility,
production capacity is expected to average about 110,000 bpd plus bitumen
production from in-situ operations. Suncor expects to return to production
capacity of approximately 225,000 bpd in September and increase production
capacity to 260,000 bpd by year end. Because Suncor is still working on fire
recovery, specific targets for oil sands production, sales mix and cash
operating costs are not currently available.
Natural Gas
Due to unplanned maintenance and weather related delays in drilling,
Suncor has revised its annual Outlook to 195 to 200 mmcf per day from the
original target of 205 to 210 mmcf per day. The revised Outlook is still
expected to exceed the company's projected purchases for internal consumption
of natural gas. The circumstances affecting this revision are anticipated to
only affect 2005. In subsequent years, Suncor's Natural Gas business will
continue to focus on annually increasing production by 3% to 5% in order to
provide a financial hedge against natural gas use at the company's oil sands
and refining operations.
Factors that could potentially impact Suncor's financial performance
during 2005 include:
- final timing of the settlement and payment of insurance proceeds