(Idea) Suncor Energy - Strong Q2 Results Despite Operational Challenges
By: Jon Costello
Note to readers: dollar figures are in Canadian dollars except where specified otherwise.
On Tuesday, August 4, Suncor Energy (SU) reported second-quarter results. The quarter featured some operational challenges, but the company’s performance was strong nevertheless.
The most significant challenge during the quarter was the weather. Fort McMurray received 50% more precipitation than its ten-year average, making it the wettest quarter in more than thirty years. Management estimates that the weather reduced bitumen mining production by 50,000 to 60,000 barrels per day.
Despite the reduced production, Suncor generated $5.329 billion of adjusted funds from operations, essentially matching the $5.345 billion record set in the second quarter of 2022, when WTI averaged US$108 per barrel. Adjusted funds from operations per share reached a record $4.52.
The quarter’s financial performance is impressive. It can be better appreciated when compared to the previous second quarters over the past few years.
In my previous Suncor article published in July, I raised the normalized 5-2-2-1 refining index assumption used in my valuation to US$35 per barrel and valued Suncor at approximately $97 per share. I also estimated second-quarter adjusted funds from operations of roughly $5.6 billion.
The quarter did not unfold as I expected. Upstream production fell 5.8% year over year, primarily because the planned turnaround reduced in situ bitumen production at Firebag. Higher production from Suncor’s oil sands mining operations, despite the unusually wet weather, partly offset that decline. Downstream throughput, meanwhile, reached a second-quarter record. Operating results relative to prior quarters are shown below.
The tables illustrate the benefit of Suncor’s integrated mode, as the mixed operating performance was still able to drive financial outperformance.
Chief Financial Officer Troy Little said downstream funds flow reached a record $2.3 billion. The company’s second-quarter report shows $2.299 billion, compared with $615 million a year earlier. The result was $172 million above the previous record in the second quarter of 2022 even though, after the renewable volume obligation, the New York Harbor 2-1-1 crack margin was more than US$10 per barrel lower.