Suncor Energy Reports Fourth Quarter 2021 Results

2022-02-02

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 (used in) operations, adjusted operating earnings (loss), net debt 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 2, 2022) - "Suncor (TSX: SU) (NYSE: SU) generated $3.1 billion, or $2.17 per common share, in adjusted funds from operations during the fourth quarter of 2021, despite operational challenges late in the quarter. These results represent the highest quarterly adjusted funds from operations in the company's history and an 11% increase on a per common share basis compared to the last per share quarterly record," said Mark Little, president and chief executive officer. "Our increased cash flows in 2021 enabled us to exceed our shareholder return targets for the year through increased dividends and accelerated share repurchases, while at the same time strengthening our balance sheet through accelerated debt reduction."

Adjusted funds from operations increased to $3.144 billion ($2.17 per common share) in the fourth quarter of 2021, compared to $1.221 billion ($0.80 per common share) in the prior year quarter. Cash flow provided by operating activities, which includes changes in non-cash working capital, was $2.615 billion ($1.80 per common share) in the fourth quarter of 2021, compared to $814 million ($0.53 per common share) in the prior year quarter.

The company recorded adjusted operating earnings of $1.294 billion ($0.89 per common share) in the fourth quarter of 2021, compared to an adjusted operating loss of $109 million ($0.07 per common share) in the prior year quarter. The company had net earnings of $1.553 billion ($1.07 per common share) in the fourth quarter of 2021, compared to a net loss of $168 million ($0.11 per common share) in the prior year quarter.

Suncor's total upstream production was 743,300 barrels of oil equivalent per day (boe/d) in the fourth quarter of 2021, compared to 769,200 boe/d in the prior year quarter, with the decrease primarily due to decreased production from the company's Exploration and Production (E&P) assets, including the absence of production from the Golden Eagle Area Development, as the sale of the asset was completed early in the fourth quarter of 2021. The company's synthetic crude oil (SCO) production was 515,000 barrels per day (bbls/d) in the fourth quarter of 2021, comparable to 514,300 bbls/d in the fourth quarter of 2020, driven by combined upgrader utilization of 96%.

Fort Hills resumed two-train operations late in the fourth quarter of 2021. The company is on track to operate the Fort Hills asset at average utilization rates of 90% throughout 2022.

Buzzard Phase 2, which is expected to extend production life of the existing Buzzard field, achieved first oil in the fourth quarter of 2021. Buzzard Phase 2 is expected to reach its peak production in 2022, adding approximately 12,000 boe/d gross (approximately 3,500 boe/d net to Suncor) to existing Buzzard production.

Refining and Marketing (R&M) delivered $765 million in adjusted funds from operations in the fourth quarter of 2021, compared to $415 million in the prior year quarter, including a first-in, first-out (FIFO) inventory valuation gain of $106 million after-tax in the current period compared to a gain of $44 million after-tax in the prior year quarter. Refinery utilization averaged 96% and crude throughput was 447,000 bbls/d in the current quarter, compared to 95% and 438,000 bbls/d respectively in the prior year quarter. The company's Canadian refineries continued to outperform the national refining industry average by approximately 15%.(1)

In 2021, Suncor executed on its net debt reduction targets, reducing debt at the highest ever annual pace, resulting in a reduction of net debt by $3.7 billion to $16.1 billion, returning to 2019 net debt levels. The company continues to reduce its debt, and subsequent to the fourth quarter of 2021, completed an early redemption of its outstanding US$182 million 4.50% notes, originally scheduled to mature in the second quarter of 2022.

Suncor returned $3.9 billion to shareholders in 2021 through $2.3 billion in share repurchases and $1.6 billion in dividends paid, including an increased dividend in the fourth quarter of 2021, returning it to 2019 levels. Since the start of its current normal course issuer bid program (NCIB) in February 2021, the company has repurchased approximately 84 million of its common shares at an average price of $27.45 per common share, or the equivalent of 5.5% of Suncor's public float as at January 31, 2021.

Subsequent to the fourth quarter of 2021, Suncor's Board of Directors (the Board) approved a renewal of the company's NCIB for the repurchase of approximately 5% of Suncor's issued and outstanding common shares as at January 31, 2022, 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.

Financial Results

Adjusted Operating Earnings (Loss)

Suncor's adjusted operating earnings increased to $1.294 billion ($0.89 per common share) in the fourth quarter of 2021, from an adjusted operating loss of $109 million ($0.07 per common share) in the prior year quarter. The increase in adjusted operating earnings was primarily related to higher crude oil and refined product realizations reflecting the improved business environment. Adjusted operating earnings were partially offset by an increase in royalties associated with higher crude price realizations and increased operating costs. The prior year quarter adjusted operating earnings were negatively impacted by the significant decline in transportation fuel demand, which led to lower price realizations, partially offset by lower operating costs.

Net Earnings (Loss)

Suncor's net earnings were $1.553 billion ($1.07 per common share) in the fourth quarter of 2021, compared to a net loss of $168 million ($0.11 per common share) in the prior year quarter. In addition to the factors impacting adjusted operating earnings (loss) discussed above, net earnings for the fourth quarter of 2021 included a $25 million ($21 million after-tax) unrealized foreign exchange gain on the revaluation of U.S. dollar denominated debt recorded in financing expenses, a $227 million ($227 million after-tax) gain on the sale of the company's interest in the Golden Eagle Area Development and a $14 million ($11 million after-tax) unrealized gain on risk management activities recorded in other income (loss). The net loss in the prior year quarter included a $559 million ($423 million after-tax) non-cash asset impairment charge against the White Rose assets, a $186 million ($142 million after-tax) transportation provision related to the Keystone XL pipeline project and a $44 million ($33 million after-tax) unrealized loss on risk management activities recorded in other income (loss), partially offset by a $602 million ($539 million after-tax) unrealized foreign exchange gain on the revaluation of U.S. dollar denominated debt recorded in financing expenses.

Adjusted Operating Earnings (Loss) Reconciliation(1)(2)

| | | | | | | | | | | | | | | | | Three months ended December 31 | | | Twelve months ended December 31 | | | | | | | | | ($ millions) | | 2021 | | | 2020 | | | 2021 | | | 2020 | | | Net earnings (loss) | | 1 553 | | | (168 | ) | | 4 119 | | | (4 319 | ) | | Unrealized foreign exchange gain on U.S. dollar denominated debt | | (21 | ) | | (539 | ) | | (101 | ) | | (286 | ) | | Unrealized (gain) loss on risk management activities(2) | | (11 | ) | | 33 | | | (4 | ) | | 29 | | | Restructuring charge(3) | | - | | | - | | | 126 | | | - | | | Asset impairment (reversal)(4) | | - | | | 423 | | | (168 | ) | | 2 221 | | | Loss on early repayment of long-term debt(5) | | - | | | - | | | 60 | | | - | | | Gain on significant disposal(6) | | (227 | ) | | - | | | (227 | ) | | - | | | Provision for pipeline project(7) | | - | | | 142 | | | - | | | 142 | | | Adjusted operating earnings (loss)(1)(2) | | 1 294 | | | (109 | ) | | 3 805 | | | (2 213 | ) |

Adjusted operating earnings (loss) is a non-GAAP financial measure. All reconciling items are presented on an after-tax basis. See the Non-GAAP Financial Measures Advisory section of this news release.

Beginning in the first quarter of 2021, the company revised its calculation of adjusted operating earnings (loss), a non-GAAP financial measure, to exclude unrealized (gains) losses on derivative financial instruments that are recorded at fair value in other income (loss) to better align the earnings impact of the activity with the underlying items being risk-managed. Prior period comparatives have been restated to reflect this change.

Restructuring charge of $168 million before-tax recorded in operating, selling and general expenses in the Corporate and Eliminations segment in the first quarter of 2021.

During the third quarter of 2021, the company recorded a non-cash impairment reversal of $221 million ($168 million after-tax) on 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. During the first quarter of 2020, the company recorded non-cash impairment charges of $1.821 billion ($1.376 billion after-tax) on its share of the Fort Hills assets, in the Oil Sands segment, and $560 million ($422 million after-tax) against its share of the White Rose and Terra Nova assets, in the E&P segment, due to a decline in forecasted crude oil prices as a result of decreased global demand due to the COVID-19 pandemic and changes to their respective capital, operating and production plans. During the fourth quarter of 2020, the company recorded non-cash impairment charges of $559 million ($423 million after-tax) against its share of the White Rose assets, in the E&P segment, as a result of the high degree of uncertainty surrounding the future of the West White Rose Project.

Charges of $80 million before-tax recorded in financing expenses associated with the early repayment of debt in the third quarter of 2021, recorded in the Corporate and Eliminations segment.

During the fourth quarter of 2021, the company recorded a $227 million ($227 million after-tax) gain on the sale of the company's interest in the Golden Eagle Area Development in the E&P segment.

In the fourth quarter of 2020, the company recorded a provision to transportation expense for $186 million ($142 million after-tax) in the Oil Sands segment related to the Keystone XL pipeline project.

Adjusted Funds from Operations and Cash Flow Provided by Operating Activities

Adjusted funds from operations were $3.144 billion ($2.17 per common share) in the fourth quarter of 2021, compared to $1.221 billion ($0.80 per common share) in the fourth quarter of 2020. Adjusted funds from operations were influenced by the same factors impacting adjusted operating earnings (loss) noted above.

Cash flow provided by operating activities, which includes changes in non-cash working capital, was $2.615 billion ($1.80 per common share) for the fourth quarter of 2021, compared to $814 million ($0.53 per common share) in the prior year quarter. In addition to the factors noted above, cash flow provided by operating activities was further impacted by a use of cash associated with the company's working capital balances in both periods. The use of cash in the fourth quarter of 2021 was primarily due to an increase in accounts receivable related to increased sales and an increase in crude oil price realizations during the quarter, and a decrease in accounts payable and accrued liabilities, partially offset by an increase in taxes payable related to the company's 2021 income tax expense, which is payable in early 2022.

Operating Results

Suncor's total upstream production was 743,300 boe/d in the fourth quarter of 2021, compared to 769,200 boe/d in the prior year quarter.

The company's net SCO production of 515,000 bbls/d in the fourth quarter of 2021 was comparable to 514,300 bbls/d in the prior year quarter, resulting in a combined upgrader utilization rate of 96% in the fourth quarter of 2021 compared to 95% in the prior year quarter. Increased SCO production at Oil Sands Base, with increased In Situ bitumen production being diverted to upgrading to maximize higher value SCO production, was largely offset by lower production at Syncrude due to unplanned maintenance, which was completed subsequent to the quarter. Production in the prior year quarter was impacted by planned maintenance at Oil Sands Base, which was completed early in the quarter.

The company's non-upgraded bitumen production was 150,900 bbls/d in the fourth quarter of 2021, compared to 157,200 bbls/d in the prior year quarter, with the decrease primarily due to lower production at Fort Hills, which resumed two-train operations late in the fourth quarter of 2021. The company is on track to operate the Fort Hills asset at average utilization rates of 90% throughout 2022.

In the fourth quarter of 2021, non-upgraded bitumen production from the company's In Situ assets was comparable to the prior year quarter, with an overall increase in production volumes being offset by increased Firebag bitumen production being diverted to upgrading. The fourth quarter of 2021 was impacted by fewer maintenance activities at Firebag compared to the prior year quarter.

E&P produced 77,400 boe/d during the fourth quarter of 2021, compared to 97,700 boe/d in the prior year quarter. The decreased production was primarily due to natural declines and the absence of production from the Golden Eagle Area Development, as the sale of the asset was completed early in the fourth quarter of 2021. Both periods were impacted by the absence of production from Terra Nova.

Refinery crude throughput increased to 447,000 bbls/d and refinery utilization was 96% in the fourth quarter of 2021, compared to refinery crude throughput of 438,000 bbls/d and refinery utilization of 95% in the prior year quarter, reflecting strong utilizations across all refineries. Refined product sales in the fourth quarter of 2021 increased to 550,100 bbls/d, compared to 508,800 bbls/d in the prior year quarter. Strong utilizations during the quarter, increased demand and secured sales channels positioned the company to capture the improved business environment.

"In the fourth quarter of 2021, we achieved combined upgrader utilization of 96%, maximizing the value of our barrels, and continued to deliver industry-leading downstream refinery utilizations of 96%," said Little. "At Fort Hills, we restarted our second primary extraction train at the end of the quarter and are now operating at planned production rates."

The company's total operating, selling and general expenses were $2.978 billion in the fourth quarter of 2021, compared to $2.494 billion in the prior year quarter. The increase was primarily due to a significant increase in natural gas prices and increased maintenance in the current quarter, and cost reductions in response to the COVID-19 pandemic in the prior year quarter. The increase was partially offset by cost reductions related to the company's strategic initiatives. The company's exposure to higher natural gas costs is partially mitigated by increased revenue from power sales.

Strategy Update

In 2021, Suncor exceeded its return to shareholder targets for the year, repurchasing the company's common shares at the highest annual rate in the company's history and increasing the dividend by 100% during the fourth quarter, while reducing debt at the highest annual pace in the company's history. During the year, the company returned a total of $3.9 billion to shareholders through $1.6 billion in dividends paid and, since the start of its NCIB in February 2021, $2.3 billion in share repurchases, representing 5.5% of Suncor's public float as at January 31, 2021. The company also reduced net debt by $3.7 billion to $16.1 billion, accelerating its initial goal to return to 2019 net debt levels.

In the fourth quarter, the company paid $607 million of dividends, representing the increased quarterly dividend of $0.42 per share which was doubled and reinstated back to 2019 levels. In addition, the company repurchased approximately 21 million common shares for $639 million under its NCIB, representing 1.4% of Suncor's public float as at January 31, 2021, while reducing its net debt by $522 million.

Subsequent to the fourth quarter of 2021, the company completed an early redemption of its outstanding US$182 million 4.50% notes, originally scheduled to mature in the second quarter of 2022. In addition, the Board approved a renewal of the company's NCIB for the repurchase of approximately 5% of Suncor's issued and outstanding common shares as at January 31, 2022, over a twelve month period, and concurrently, the TSX accepted a notice filed by Suncor to renew its NCIB in respect of the repurchase of such shares. The company continues to make progress towards its 2025 targeted net debt range of $12-$15 billion and its shareholder return targets demonstrating its commitment to fortifying the balance sheet and returning cash to shareholders.

"In 2021, we reduced our debt at the highest annual pace in the company's history and maximized the returns to our shareholders through accelerated share repurchases and dividends, including the doubling of our dividend in the fourth quarter," said Little. "The execution of this strategy has allowed us to exit the year with a strengthened balance sheet, and we are well positioned to execute on our 2022 strategic initiatives, which are focused on operational excellence, shareholder returns and optimizing our existing base business while progressing the reduction of carbon emissions across our value chain."

Suncor's value of safety above all else and its focus on operational excellence, underpinned by asset reliability, operating cost and capital discipline, remains its top priority. The company remains focused on maximizing upgrader utilization at Syncrude and Oil Sands operations, capturing the higher margin on SCO production by capitalizing on the regional strength of our Oil Sands assets, and leveraging the flexibility of the integrated model to optimize refinery throughput. With the completion of the largest annual maintenance program in the company's history in 2021, Fort Hills resuming two-train operations, and the industry-leading refinery utilizations in the downstream supported by secured sales channels, the company is positioned to increase production and refined product sales in 2022.

Looking forward, the company is committed to a focus on capital and operating cost discipline, and lowering the cash operating costs per barrel by continuing to progress its strategic initiatives and planned synergies. In the fourth quarter, as operator at Syncrude, the company continued to make progress towards the realization of synergies for the joint venture owners and is on track to achieve the expected $100 million of annual gross synergies by early 2022, with an additional $200 million expected in 2022-2023.

The company's 2021 capital expenditures were heavily focused on the safety, long-term reliability and efficiency of the company's operating assets. Looking ahead, enabled by efficiencies achieved across the business and the company's commitment to capital discipline, in 2022 the company expects to achieve capital expenditures of $4.7 billion, or $300 million (6%) lower than the previously announced ceiling of $5.0 billion, with a program largely focused on sustaining capital including planned maintenance and tailings optimizations. Economic capital spend will continue to be focused on advancing projects and investments that are expected to enhance value within our existing integrated asset base, and incrementally and sustainably grow annual free funds flow.

Earlier from Suncor Energy Inc.

Suncor Energy Declares Dividend 2022-02-02
Suncor Energy Provides Q4 2021 Safety and Production Update 2022-01-18
Suncor Energy to Release Fourth Quarter 2021 Financial Results 2021-12-29