A premier Canadian integrated energy company, Suncor Energy (SU) reported lackluster second quarter 2011 results, bruised by lower volumes, project hindrances along with higher depreciation and impairment.
Earnings per share, excluding certain items, came in at 62 Canadian cents (64 U.S. cents) in the quarter, lagging the Zacks Consensus Estimate of 66 cents. On a year-over-year basis, earnings increased 14.8% from 54 Canadian cents.
In the reported quarter, total revenue of C$9.59 billion ($9.90 billion) escalated 13.3% from the year-ago level. However, sales failed to meet our projection of $11.3 billion.
Cash flow from operations increased 12.0% from the year-ago quarter to C$1.98 billion, buoyed by realized prices and better refining margins.
Production
Upstream production during the quarter averaged 460,000 barrels of oil equivalent per day (Boe/d), down from the prior-year quarter level of 633,900 Boe/d. The drop in production was due to the divestiture of non-core assets, planned maintenance activities at the oil sands fields and operational disturbances in Libya.
Excluding proportionate production share from the Syncrude joint venture, oil sands volumes dipped to 243,400 barrels per day (Bbl/d) from 295,500 Bbl/d in the prior-year quarter.
Syncrude operations registered a 13.1% year-over-year decline in production to 33,800 Bbl/d in the quarter.
Suncor’s newly formed Exploration and Production segment (consisting of International and Offshore and Natural Gas segments) recorded production of 182,800 Boe/d, as against 299,500 Boe/d in the prior-year quarter. The sale of non-core assets and production freeze at various global locations resulted in the year-over-year decline.
Product Sales
The company’s Refining and Marketing segment generated total refined product sales of 83,900 cubic meters per day, down 5.7% year over year. The reduction was on account of planned maintenance events at three of Suncor’s four refineries.
Balance Sheet and Capital Expenditures
As of June 30, 2011, Suncor had cash and cash equivalents of C$3.1 billion and total long-term debt (including current portions) of C$10.1 billion. The debt-to-capitalization ratio was approximately 21.5%. The company incurred $1.94 billion in capital expenditure in the quarter.
Asset Sale Update
During the quarter, Suncor signed a deal to sell off a part of its non-core properties from North America Onshore operations for net proceeds of $168 million, subject to closing adjustments.
Dividend Hiked
During the quarter, Suncor announced a 10% increase in its quarterly dividend to 11 Canadian cents per share, or 44 Canadian cents per share annualized. The dividend is payable on September 26 to shareholders of record on September 6.
Guidance
For 2011, Suncor guided total production of 520,000–570,000 Boe/d, with East Coast Canada production expected in the range of 58,000–65,000 Bbl/d. International volumes are estimated to range between 80,000 Boe/d and 90,000 Boe/d, while production at North American Onshore will be in the band of 370–410 million cubic feet equivalent per day.
The company expects oil sands production of 280,000–310,000 Bbl/d and projects Syncrude production at approximately 35,000–37,000 Bbl/d.
Suncor targets to expend $6.70 billion on capital programs for 2011.
Our Recommendation
Based in Canada, Suncor Energy displays an impressive portfolio of growth opportunities, a unique asset base and a high return potential for the long run. We expect the company to perform brightly in the second half of 2011, aided by the improving strong business prospects, cost saving initiatives and leverages to crude oil prices. Hence we maintain our long-term Outperform recommendation on the stock.
Suncor, which presents stiff competition for its peers InterOil Corporation (IOC) and Ecopetrol SA (EC), currently retains a Zacks #1 Rank, which translates into a short-term Strong Buy rating.
ECOPETROL- ADR (EC): Free Stock Analysis Report
INTEROIL CORP (IOC): Free Stock Analysis Report
SUNCOR ENERGY (SU): Free Stock Analysis Report
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment