Morningstar | More Buybacks and Record-High Refining Performance Fuel Suncor
No-moat Suncor Energy reported a record high quarter in its refining segment, generating EBITDA of CAD 1.4 billion. Third-quarter EBITDA was more or less in line with our expectations and up 30% sequentially. The record-high performance was driven by lower cost feedstock resulting from the widening of the heavy oil discount, which plagued parts of the oil sands segment.Suncor reported production of 743.8 thousand barrels of oil per day, or mbbl/d, during the third quarter. Production came in below our expectations, driven by: natural declines in the E&P business; a slower ramp up at Fort Hills; and a slower ramp-up at Syncrude. Fort Hills averaged 69.4 mbbl/d, and management expects it to reach 90% of its nameplate capacity during the fourth quarter. Bitumen realizations were hit hard during the quarter, declining 30% at the base mine and 14% at Fort Hills.
However, the record performance from the refining segment was more than enough to offset lower price realizations. Accordingly, Suncor reported record-high funds from operations of CAD 3.1 billion, which was in line with our expectations after adjusting for one-time items. The company used that cash to pay down CAD 1.2 billion in debt and repurchase CAD 890 million of its common shares. As a reminder, with new growth projects on the back burner, Suncor announced its second plan to repurchase the company’s stock over a 12-month period. Stock repurchases began in May 2018. Suncor will repurchase CAD 5 billion of shares over the two-year period, which began in May 2017.
We intend to incorporate Suncor’s third-quarter results into our model shortly, but at this time, our fair value estimate is unchanged at $37 (CAD 48).
For a detailed look at Canadian crude and pipeline trends, please refer to our September Energy Observer, "Don't Overlook Oil Sands: Falling Costs and More Infrastructure Will Make Canadian Production Globally Competitive."
Suncor Energy is an energy company. Co.'s operations include oil sands development and upgrading, onshore and offshore oil and gas production, petroleum refining, and product marketing under the Petro-Canada brand. Co.'s segments include: oil sands, which develop and produce synthetic crude oil and related products through the recovery and upgrading of bitumen; exploration and production, which include offshore activity, and the exploration and production of crude oil, natural gas, and natural gas liquids; and refining and marketing, which include the refining of crude oil products, and the distribution and marketing of these and other purchased products, as well as a lubricants plant.
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