Suncor Energy Inc. press release
Suncor Energy Reports Fourth Quarter 2022 Results
TSX - Toronto Stock Exchange · Canada
Unless otherwise noted, all financial figures are unaudited, presented in Canadian dollars (Cdn$), and have been prepared in accordance with International Financial Reporting Standards (IFRS), specifically International Accounting Standard (IAS) 34 Interim Financial Reporting as issued by the International Accounting Standards Board. Production volumes are presented on a working-interest basis, before royalties, except for production values from the company's Libya operations, which are presented on an economic basis. Certain financial measures referred to in this news release (adjusted funds from operations, adjusted operating earnings, net debt, last-in, first-out (LIFO) inventory valuation methodology and free funds flow) are not prescribed by Canadian generally accepted accounting principles (GAAP). See the Non-GAAP Financial Measures section of this news release. References to Oil Sands operations exclude Suncor Energy Inc.'s interest in Fort Hills and Syncrude.
Calgary, Alberta--(Newsfile Corp. - February 14, 2023) - Suncor Energy Inc. (TSX: SU) (NYSE: SU)
"In 2022, we returned nearly $8 billion of value to our shareholders through dividends and share repurchases, representing approximately 43% of our record adjusted funds from operations of $18 billion," said Kris Smith, Interim President and Chief Executive Officer. "We allocated nearly 60% of our excess funds to share buybacks and approximately 40% to debt reduction, and we're exiting the year with the highest dividend per share in our company's history, all of which reflect our unwavering commitment to maximizing shareholder returns."
Adjusted funds from operations increased to $4.189 billion ($3.11 per common share) in the fourth quarter of 2022, compared to $3.144 billion ($2.17 per common share) in the prior year quarter. Cash flow provided by operating activities, which includes changes in non-cash working capital, increased to $3.924 billion ($2.91 per common share) in the fourth quarter of 2022, compared to $2.615 billion ($1.80 per common share) in the prior year quarter. Adjusted operating earnings increased to $2.432 billion ($1.81 per common share) in the fourth quarter of 2022, compared to $1.294 billion ($0.89 per common share) in the prior year quarter. Net earnings increased to $2.741 billion ($2.03 per common share) in the fourth quarter of 2022, compared to $1.553 billion ($1.07 per common share) in the prior year quarter. Production from the company's Oil Sands assets was 688,100 barrels per day (bbls/d) in the fourth quarter of 2022, compared to 665,900 bbls/d in the prior year quarter, with the current period including record quarterly production at Firebag. In 2022, Syncrude delivered record annual mine bitumen production, with both strong synthetic crude oil (SCO) production and by capitalizing on the company's regional integration through transfers on the interconnecting pipelines, all of which helped to achieve Suncor's second highest annual SCO production of 480,000 bbls/d. Refining and Marketing (R&M) generated adjusted funds from operations(1)of $1.663 billion in the fourth quarter of 2022, or $2.102 billion excluding the impacts of a first-in, first-out (FIFO) inventory valuation loss(2)of $439 million, compared to $869 million of adjusted funds from operations in the prior year quarter, or $708 million excluding the impacts of a FIFO inventory valuation gain(2)of $161 million. In 2022, Suncor returned over $7.7 billion of value to its shareholders, compared to $3.9 billion in the prior year. Record shareholder returns in 2022 included $2.6 billion of dividends paid and $5.1 billion in share repurchases. In 2022, the company repurchased a record 116.9 million common shares at an average price of $43.92 per common share, or the equivalent of 8.1% of its common shares as at December 31, 2021. In the fourth quarter of 2022, Suncor's Board of Directors (the Board) approved a quarterly dividend of $0.52 per share, a 23.8% increase over the fourth quarter of 2021 dividend and the highest quarterly dividend per share in the company's history. Subsequent to the fourth quarter of 2022, the Board approved a renewal of the company's normal course issuer bid (NCIB) for the repurchase of up to 10% of Suncor's public float as at February 3, 2023, over a twelve-month period, and concurrently, the Toronto Stock Exchange (TSX) accepted a notice filed by Suncor to renew its NCIB in respect of the repurchase of such shares. In support of its net debt reduction and annual capital allocation targets, the company reduced net debt by nearly $1.0 billion in the fourth quarter of 2022, or $745 million excluding the impact of a $200 million unrealized foreign exchange gain on the revaluation of U.S. dollar denominated debt. In 2022, the company reduced net debt by over $2.5 billion, or approximately $3.2 billion excluding the impact of a $729 million unrealized foreign exchange loss on the revaluation of U.S. dollar denominated debt. The significant reduction in debt provides ongoing balance sheet flexibility, reduces long-term financing costs, and demonstrates the company's confidence in its business and commitment to reducing net debt. In the fourth quarter of 2022, as a result of a comprehensive strategic review of its downstream retail business, the company announced that it will retain and continue to improve and optimize the Petro-Canada™ retail business. Subsequent to the fourth quarter of 2022, the company completed the sale of its wind and solar assets, and the acquisition of an additional working interest in Fort Hills, bringing the company's total aggregate working interest in Fort Hills to 68.76%. The sale process for the company's U.K. E&P portfolio is progressing, with a sale anticipated to close in mid-2023.
Financial Results
Adjusted Operating Earnings
Suncor's adjusted operating earnings increased to $2.432 billion ($1.81 per common share) in the fourth quarter of 2022, compared to $1.294 billion ($0.89 per common share) in the prior year quarter, primarily due to significantly higher crude oil and refined product realizations, reflecting the improved business environment in the current quarter and higher upstream production, partially offset by increased operating expenses and income taxes. Adjusted operating earnings were also impacted by a weakening in benchmark pricing during the current quarter, compared to a strengthening in benchmark pricing in the prior year quarter, resulting in a FIFO inventory valuation loss in the fourth quarter of 2022, compared to a gain in the prior year quarter.
Net Earnings
The company had net earnings of $2.741 billion ($2.03 per common share) in the fourth quarter of 2022, compared to $1.553 billion ($1.07 per common share) in the prior year quarter. In addition to the factors impacting adjusted operating earnings discussed above, net earnings for the fourth quarter of 2022 included a $200 million unrealized foreign exchange gain on the revaluation of U.S. dollar denominated debt recorded in financing expenses, a $106 million unrealized loss on risk management activities recorded in other income (loss) and a $215 million income tax recovery excluded from adjusted operating earnings. Net earnings in the prior year quarter included a $227 million gain on the sale of the company's interest in the Golden Eagle Area Development, a $25 million unrealized foreign exchange gain on the revaluation of U.S. dollar denominated debt recorded in financing expenses, a $14 million unrealized gain on risk management activities recorded in other income (loss) and a $7 million income tax expense excluded from adjusted operating earnings.
Adjusted Operating Earnings Reconciliation(1)
| | | Three months ended December 31 | | | Twelve months ended December 31 | | | | | | | | | ($ millions) | | 2022 | | | 2021 | | | 2022 | | | 2021 | | | Net earnings | | 2 741 | | | 1 553 | | | 9 077 | | | 4 119 | | | Unrealized foreign exchange (gain) loss on U.S. dollar denominated debt | | (200 | ) | | (25 | ) | | 729 | | | (113 | ) | | Unrealized loss (gain) on risk management activities | | 106 | | | (14 | ) | | 5 | | | (6 | ) | | Asset impairment (reversal)(2) | | - | | | - | | | 2 752 | | | (221 | ) | | Recognition of insurance proceeds(3) | | - | | | - | | | (147 | ) | | - | | | (Gain) loss on significant disposal(4) | | - | | | (227 | ) | | 65 | | | (227 | ) | | Restructuring charge(5) | | - | | | - | | | - | | | 168 | | | Loss on early repayment of long-term debt(6) | | - | | | - | | | - | | | 80 | | | Income tax (recovery) expense excluded from adjusted operating earnings(7) | | (215 | ) | | 7 | | | (915 | ) | | 5 | | | Adjusted operating earnings(1) | | 2 432 | | | 1 294 | | | 11 566 | | | 3 805 | |
(1) Adjusted operating earnings is a non-GAAP financial measure. All reconciling items are presented on a before-tax basis and adjusted for income taxes in the income tax (recovery) expense excluded from adjusted operating earnings line. See the Non-GAAP Financial Measures section of this news release. (2) In the second quarter of 2022, as a result of the decision to restart the West White Rose Project, the company recorded a non-cash impairment reversal of $715 million on its share of the White Rose assets in the E&P segment. Also during the second quarter of 2022, as a result of the company's expected sale of its E&P assets in Norway, and the subsequently reached agreement for such sale, the company recorded a non-cash impairment of $70 million against its share of its assets in Norway in the E&P segment. During the third quarter of 2022, in connection with the company entering into a conditional agreement to acquire Teck Resources Limited's (Teck) interest in Fort Hills, as well as updates to the Fort Hills long-range plan including production and operating cost plans, the company recorded a non-cash impairment of $3.397 billion against its share of the Fort Hills assets in the Oil Sands segment. During the third quarter of 2021, the company recorded a non-cash impairment reversal of $221 million against its share of the Terra Nova assets, in the E&P segment, as a result of the Asset Life Extension Project moving forward and the benefit of royalty and financial support from the Government of Newfoundland and Labrador. (3) During the third quarter of 2022, the company recorded $147 million of property damage insurance proceeds in other income (loss) related to the company's assets in Libya in the E&P segment. (4) During the third quarter of 2022, the company incurred a $65 million foreign exchange loss related to the sale of the company's share of its assets in Norway in the E&P segment. (5) During the first quarter of 2021, the company recorded a restructuring charge in operating, selling & general (OS&G) expenses related to workforce-reduction plans. (6) During the third quarter of 2021, the company recorded a loss of $80 million for the early repayment of long-term debt. (7) In the fourth quarter of 2022, income tax (recovery) expense excluded from adjusted operating earnings includes a deferred income tax recovery of $171 million related to the anticipated sale of the company's U.K. E&P portfolio and a current income tax recovery of $39 million related to the sale of its wind and solar assets.
Adjusted Funds from Operations and Cash Flow Provided by Operating Activities
Adjusted funds from operations increased to $4.189 billion ($3.11 per common share) in the fourth quarter of 2022, compared to $3.144 billion ($2.17 per common share) in the prior year quarter. Adjusted funds from operations were influenced by the same factors impacting adjusted operating earnings noted above.
Cash flow provided by operating activities, which includes changes in non-cash working capital, increased to $3.924 billion ($2.91 per common share) in the fourth quarter of 2022, compared to $2.615 billion ($1.80 per common share) in the prior year quarter. In addition to the factors impacting adjusted funds from operations, cash flow provided by operating activities was impacted by a smaller use of cash associated with the company's working capital balances in the fourth quarter of 2022 compared to the prior year quarter.
Operating Results
Suncor's total upstream production increased to 763,100 barrels of oil equivalent per day (boe/d) in the fourth quarter of 2022, compared to 743,300 boe/d in the prior year quarter, primarily driven by increased production from the company's Oil Sands assets.
The company's net SCO production was 517,500 bbls/d in the fourth quarter of 2022, comparable to 515,000 bbls/d in the prior year quarter. Increased SCO production at Syncrude, reflecting 99% upgrader utilization in the fourth quarter of 2022, compared to 90% in the prior year quarter, was partially offset by decreased production at Oil Sands Base as the current quarter was impacted by the completion of planned maintenance activities that commenced in the third quarter of 2022.
The company's non-upgraded bitumen production increased to 170,600 bbls/d in the fourth quarter of 2022, compared to 150,900 bbls/d in the fourth quarter of 2021, primarily due to increased production from Fort Hills and record quarterly production from Firebag.
Non-upgraded bitumen production from the company's In Situ assets in the fourth quarter of 2022 was higher than the prior year quarter, with an overall increase in bitumen production volumes being partially offset by increased Firebag production being diverted to upgrading in the current period, as the prior year quarter was impacted by maintenance activities at Firebag. During the fourth quarter of 2022, the company also leveraged its asset flexibility and marketing and trading expertise, including its midstream and logistics network, to mitigate third-party pipeline disruptions, resulting in additional non-upgraded bitumen production being sold to market.
E&P production during the fourth quarter of 2022 was 75,000 boe/d, compared to 77,400 boe/d in the prior year quarter. The decrease in production was primarily due to asset sales at E&P International, partially offset by increased production at E&P Canada.
Upstream production in 2023 is expected to be impacted by the disciplined decisions the company has taken to streamline its portfolio to enable greater fit and focus and drive value from its core business. This includes increased production associated with the company's additional working interest in Fort Hills, partially offset by reduced production reflecting the execution of its 36-month mine improvement plan, continued strong production from the company's In Situ assets, and the Terra Nova return to production in the second quarter of 2023, partially offset by the anticipated sale of the company's U.K. E&P business in 2023.
"We achieved combined upgrader utilization of 96% this quarter, delivered record Firebag production, and leveraged our asset and production flexibility as well as our midstream expertise to maximize the value of our barrels. In the downstream, we delivered refinery utilizations of 94%, supporting our ability to maximize margin capture in a robust demand environment," said Smith. "We have worked hard to mitigate the impacts of the weather-related outage at the Commerce City refinery and, as a result, we anticipate a return to normal production rates by the end of the first quarter. Looking ahead in 2023, we will continue to focus on the delivery of safe and reliable operations across the business."
Refinery crude throughput was 440,000 bbls/d and refinery utilization was 94% in the fourth quarter of 2022, compared to 447,000 bbls/d and 96% in the prior year quarter, with the decrease due to unplanned maintenance in the current period, including the weather-related event that occurred late in the quarter at the company's Commerce City refinery. Refined product sales in the fourth quarter of 2022 were 548,200 bbls/d, comparable to 550,100 bbls/d in the prior year quarter.
Progressive restart activities at the company's Commerce City refinery are currently underway, and the asset is anticipated to return to normal production rates by the end of the first quarter.
The company's total OS&G expenses were $3.556 billion in the fourth quarter of 2022, compared to $2.978 billion in the prior year quarter. The increase was mainly due to a significant increase in commodity input costs, including higher natural gas prices, increased maintenance, inflationary impacts and increased share-based compensation expense in the fourth quarter of 2022 compared to the prior year quarter. The company's exposure to higher natural gas costs is partially mitigated by revenue from power sales that is recorded in operating revenues.
Strategy Update
"Our top priority going into 2023 is driving the improved safety and operational performance of our company through our operational excellence principles, which in turn will deliver increased returns to shareholders," said Smith. "Our goal is to leverage our competitive advantages, including the scale and size of our integrated model, our regional oil sands advantage, and the improved fit and focus of our asset base, to drive cost and capital efficiency and maximize value from every barrel."
Suncor is laser focused on driving improved safety and operational performance across the company, and ensuring that it delivers competitive and sustainable value to its shareholders. Looking ahead, the company is executing on its clear and accelerated plans to improve its safety performance. This includes a full-scale implementation of collision awareness and fatigue management technologies, with installations occurring on over one thousand pieces of mobile mining equipment. Suncor will be the first oil sands operator to execute a full-scale implementation of these technologies, and the company is on track to go live by the end of 2023. The company's rigorous safety improvement plans also include strengthening its risk management systems, improving its contractor safety management and doubling the safety weighting in its annual incentive program to drive safety across the business.
In the fourth quarter of 2022, Suncor's Board, with the support of external advisors, completed a comprehensive strategic review of its downstream retail business. As a result of the review, the company announced that it will retain and optimize the Petro-Canada™ retail business, with the goal of further strengthening Suncor's integrated R&M business and driving increased long-term value for shareholders. The enhancement of Suncor's retail business will include changing the mix ownership model of the company-owned and controlled, dealer-owned and partnership sites. Economic investment in 2023 is expected to be focused on company-owned and controlled sites, in the most profitable sites and markets, while optimizing the non-company-controlled sites in less densely populated areas, using alternative ownership structures and partnerships to grow the brand's scale and presence. These activities will also include the continued expansion of strategic partnerships in non-fuel-related businesses such as quick service restaurants, convenience stores, loyalty partnerships and energy transition offerings to provide low-carbon solutions to its customers.
In its Oil Sands business, the company is focused on leveraging its regional scale and standardized processes to drive cost efficiencies and reliability improvements, in addition to leveraging its interconnected asset base, including the interconnecting pipelines between Oil Sands Base and Syncrude, to improve the scope, duration and sequencing of turnarounds. In 2022, the company completed and commissioned the new paraffinic froth treatment (PFT) hot bitumen transfer piping which enables transfers of up to 60,000 bbls/d of PFT from Fort Hills to upgrading at Oil Sands Base, further increasing the company's regional integration and flexibility. The company continues to progress opportunities to further increase the integration and flexibility of its operations, which allows the company to manage through both internal and external market factors, and to respond to dynamic market conditions.