Hibernia (Image source: Suncor)

• Funds from operations increased to $1.166 billion ($0.76 per common share) in the third quarter of 2020, from $488 million ($0.32 per common share) in the second quarter of 2020. Funds from operations were $2.675 billion ($1.72 per common share) in the prior year quarter. Cash flow provided by operating activities, which includes changes in non-cash working capital, was $1.245 billion ($0.82 per common share) in the third quarter of 2020, compared to $3.136 billion ($2.02 per common share) in the prior year quarter.
• The company recorded an operating loss of $302 million ($0.20 per common share) in the third quarter of 2020, compared to $1.489 billion ($0.98 per common share) in the second quarter of 2020 and operating earnings of $1.114 billion ($0.72 per common share) in the prior year quarter. The company had a net loss of $12 million ($0.01 per common share) in the third quarter of 2020, compared to net earnings of $1.035 billion ($0.67 per common share) in the prior year quarter.
• The company continued to reduce operating and capital costs in the third quarter of 2020 relative to the prior year quarter and remains on track to achieve its previously announced $1 billion operating cost reduction target and $1.9 billion capital cost reduction target.
• The company undertook significant maintenance activities across its upstream and downstream assets in the third quarter of 2020, which resulted in lower production volumes and refinery utilization. Total upstream production decreased to 616,200 barrels of oil equivalent per day (boe/d) during the third quarter of 2020, from 762,300 boe/d in the prior year quarter, and refinery utilization averaged 87% in the third quarter of 2020 compared to 100% in the prior year quarter. Substantially all maintenance activities were completed during or subsequent to the third quarter of 2020, including repairs at Oil Sands Base Plant, enabling all assets to return to normal operating rates by early November 2020.
• The company’s ability to react rapidly to changing market conditions enabled the company to exit the quarter with refinery utilization of approximately 97%.
• During the third quarter of 2020, Suncor began the restart of the second primary extraction train at Fort Hills. In October 2020, the restart was completed with Fort Hills now on track to achieve its updated gross production guidance of between 120,000 and 130,000 barrels per day (bbls/d) in the fourth quarter of 2020.
• The accelerated maintenance at Firebag, which allows the company to integrate and fully utilize the additional steam and water treatment assets has been substantially completed subsequent to the third quarter of 2020. Firebag is in the process of commissioning and ramping up the facility to its new nameplate capacity of 215,000 bbls/d.
• The interconnecting pipelines between Suncor’s Oil Sands Base Plant and Syncrude are nearing completion of construction, and will be commissioned in the fourth quarter of 2020. The bidirectional pipelines are expected to enhance integration between these assets and provide increased operational flexibility.

“We remain steadfast in our commitment to the safety and reliability of our operations as we continue to navigate the impact of the COVID19 pandemic,” said Mark Little, president and chief executive officer. “Although the pandemic continues to have adverse impacts on our industry, we remain focused on items within our control, including the safety of our workforce and communities, and structural changes that lower our cost base, preserve the financial resiliency of the company and set the foundation for longterm value creation.”

Operating (Loss) Earnings

Suncor’s third quarter 2020 operating loss was $302 million ($0.20 per common share), compared to operating earnings of $1.114 billion ($0.72 per common share) in the prior year quarter. In the third quarter of 2020, crude oil and refined product realizations decreased significantly from the prior year quarter, with crude oil and crack spread benchmarks declining by more than 25%, primarily due to the impacts of the COVID19 pandemic. Upstream production decreased as the company experienced an operational incident at Oil Sands Base Plant and Fort Hills continued operating on one primary extraction train. Refinery crude throughput decreased compared to the prior year quarter due to planned maintenance activities and lower demand for transportation fuels as a result of the COVID19 pandemic. Operating losses in the third quarter of 2020 were minimized by the decrease in operating, selling and general expenses associated with lower production and the continued execution of the company’s cost reduction initiatives.

Net (Loss) Earnings

Suncor’s net loss was $12 million ($0.01 per common share) in the third quarter of 2020, compared to net earnings of $1.035 billion ($0.67 per common share) in the prior year quarter. In addition to the factors impacting operating (loss) earnings discussed above, the net loss for the third quarter of 2020 included a $290 million unrealized after-tax foreign exchange gain on the revaluation of U.S. dollar denominated debt. Net earnings in the prior year quarter included a $127 million unrealized after-tax foreign exchange loss on the revaluation of U.S. dollar denominated debt and an after-tax gain of $48 million in the Exploration and Production (E&P) segment related to the sale of certain non-core assets.

Funds from Operations and Cash Flow Provided By Operating Activities

Funds from operations were $1.166 billion ($0.76 per common share) in the third quarter of 2020, compared to $2.675 billion ($1.72 per common share) in the third quarter of 2019, and were influenced by the same factors impacting operating (loss) earnings noted above.

Cash flow provided by operating activities, which includes changes in non-cash working capital, was $1.245 billion ($0.82 per common share) for the third quarter of 2020, compared to $3.136 billion ($2.02 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 lower source of cash associated with the company’s working capital balances in the third quarter of 2020 compared to the prior year quarter. The source of cash was primarily due to an increase in accrued liabilities relative to the second quarter of 2020, partially offset by an increase in income taxes receivable due to tax losses incurred, which are expected to be received in 2021.

Operating Results

Suncor’s total upstream production was 616,200 boe/d during the third quarter of 2020, compared to 762,300 boe/d in the prior year quarter. Synthetic crude oil (SCO) production decreased to 410,800 bbls/d in the third quarter of 2020 from 479,300 bbls/d in the third quarter of 2019, resulting in combined upgrader utilization rates of 75% and 87%, respectively, with both periods impacted by planned maintenance at Oil Sands operations and Syncrude and, in the third quarter of 2020, by an operational incident at the secondary extraction facilities at Oil Sands Base Plant. Production was restored to 165,000 bbls/d of mined bitumen, within approximately two weeks of the incident, as production was restricted to manage bitumen quality into the upgraders. Subsequent to the third quarter of 2020, repairs were substantially completed and production is anticipated to ramp up to full rates by early November 2020. To mitigate the impact of this event, the company diverted bitumen production from Firebag to the upgraders to maximize the production of higher value SCO barrels. As a result, overall Oil Sands production was also reduced by the yield loss associated with upgrading In Situ bitumen to SCO.

Non-upgraded bitumen production decreased to 108,200 bbls/d in the third quarter of 2020 from 190,700 bbls/d in the third quarter of 2019, as bitumen production from Firebag was diverted to the upgrader to maximize value over volume and as Fort Hills continued operating on one primary extraction train throughout the third quarter of 2020. At the end of the third quarter of 2020, the company also accelerated a portion of Firebag maintenance originally scheduled for 2022, to expand the capacity of the facility through the installation of new incremental emulsion handling and steam infrastructure and also address plant restrictions that developed during the quarter. This maintenance was substantially completed subsequent to the third quarter of 2020.

At Fort Hills, the second primary extraction train was restarted in the third quarter of 2020. Subsequent to the third quarter of 2020, the restart was completed with Fort Hills now on track to achieve its updated gross production guidance of between 120,000 and 130,000 bbls/d in the fourth quarter of 2020. This lays the foundation for improved cost effectiveness through optimization of the mine fleet and includes the completion of the full deployment of autonomous haul trucks by the end of 2020. At this initial production level, Suncor expects to retain approximately 90% of the estimated cost reductions.

“We are disappointed with our recent operational performance so we are strengthening our focus on the company’s commitment to reliability,” said Little. “We remain focused on operational excellence and on continuing to make the right longterm decisions to advance our asset sustainment and strategic initiatives aimed at improving reliability, increasing margins and reducing operating costs across our assets.”

E&P production during the third quarter of 2020 increased to 97,200 boe/d from 92,300 boe/d in the prior year quarter, primarily due to improved reliability at Hibernia, and increased production at Hebron as six new production wells have come online since the third quarter of 2019, partially offset by Terra Nova, which remained offline, and natural declines in the United Kingdom.

Refinery crude throughput was 399,700 bbls/d and refinery utilization was 87% in the third quarter of 2020, compared to refinery crude throughput of 463,700 bbls/d and refinery utilization of 100% in the prior year quarter, with the decline due to the completion of the eight-week planned maintenance event at the Edmonton refinery and lower demand for refined products during the third quarter of 2020. Refined product sales decreased in the third quarter of 2020 to 534,000 bbls/d, compared to 572,000 bbls/d in the prior year quarter, as a result of the COVID19 pandemic.

The company’s total operating, selling and general expenses decreased to $2.275 billion in the third quarter of 2020 from $2.793 billion in the prior year quarter, primarily due to lower overall upstream and downstream sales volumes, continued cost reduction initiatives executed in 2020, as well as a share-based compensation recovery incurred in the third quarter of 2020, as compared to a share-based compensation expense in the prior year quarter. Operating, selling and general expenses for the nine months ended September 30, 2020 decreased by approximately $1 billion compared to the prior year period.

“Suncor continues to reduce operating and capital costs across our business,” said Little. “Building on our commitment to reliability, the work at our Oil Sands Base Plant, Firebag and Fort Hills operations is substantially complete and the facilities are in the process of ramping up to normal operating rates by early November. With our full complement of refinery assets back on stream after planned maintenance, the company is positioned for strong performance exiting 2020.”

Strategy Update

In response to the COVID19 pandemic and global supply imbalances, the company took decisive action to lower production to meet demand, lower operating costs and capital, and preserve its financial strength while laying the foundation to deliver longterm value in support of increasing shareholder returns. This approach is underpinned by Suncor’s commitment to operational excellence, including its unwavering commitment to operate in a safe, reliable, cost-efficient and environmentally responsible manner.

Suncor has made progress in reducing operating costs across the company and remains on track to achieve the previously announced $1 billion operating cost reduction target by the end of 2020. In 2020, the company has achieved savings through base business reductions, enhancements to our supply chain model and reductions in costs as Fort Hills temporarily transitioned to one primary extraction train. In addition to the progress Suncor has made thus far on reducing operating and capital costs, the company has made the decision to accelerate structural reductions to its workforce over the next 18 months by approximately 10 to 15%, which were anticipated as part of the company’s transformation and $2 billion incremental free funds flow target.

The company also remains on track to achieve its $1.9 billion capital reduction target by the end of 2020, shifting the focus to sustaining projects designed to maintain safe and reliable operations, while advancing select projects in the core of our business that are expected to provide near-term returns and result in structural reductions to operating costs. Suncor continues to exercise capital discipline, carefully evaluating future projects and being disciplined in the deployment of capital in a constrained environment. This includes reducing spending across various E&P assets, including at Terra Nova, West White Rose and Fenja. The operator of the West White Rose Project has announced the cancellation of the 2021 construction season and is moving the project into safekeeping mode. The company is exercising capital discipline by undertaking activities to safely preserve the Terra Nova floating production storage and offloading unit quayside and deferring the asset life extension (ALE) project until an economically viable path forward with a safe and reliable return to operations can be determined. The ALE project is currently being evaluated with all stakeholders to determine the best option to recover remaining resources from the Terra Nova field.

In the third quarter of 2020, the company continued to advance the transition to its Autonomous Haulage System (AHS) at Fort Hills, which is expected to result in enhanced safety, environmental and operating performance, and lower operating costs. The company anticipates that the AHS truck fleet at Fort Hills will be fully operational in the fourth quarter of 2020. Starting late in the third quarter of 2020, Firebag In-Situ production rates were reduced to 110,000 bbls/d to enable Suncor to expand the capacity of the facility by fully integrating the new incremental emulsion handling and steam infrastructure. Following completion of this work, Firebag nameplate capacity will increase by 12,000 bbls/d to 215,000 bbls/d. The interconnecting pipelines between Suncor’s Oil Sands Base Plant and Syncrude are nearing completion of construction, and will be commissioned in the fourth quarter of 2020. The bidirectional pipelines are expected to enhance integration between these assets and provide increased operational flexibility.

These initiatives are anticipated to deliver structural, sustained free funds flow growth through margin improvements, operating and sustaining capital cost reductions, and production growth from existing assets, which will contribute to Suncor’s $2 billion free funds flow target. Technology investments in the company’s marketing and trading business and the advancement of supply chain optimization initiatives are also expected to contribute towards this target while unlocking value that is largely independent of commodity prices. These projects will be underscored by digital technology adoption as the company continues to accelerate its digital transformation strategy aimed at improving the reliability, safety and environmental performance of its operations and which the company anticipates will enable operational efficiencies that will provide further structural cost savings.

“Through our integrated model and the value-driven projects we’ve advanced, including the AHS at Fort Hills and the Syncrude interconnecting pipelines, we believe Suncor is well positioned to add incremental and sustainable free funds flow in 2021,” said Little. “We are confident that the steps we have taken this year will contribute to creating longterm value for our shareholders.”

While the focus in 2020 has been on maintaining the financial strength and resiliency of the balance sheet through this period of volatile market conditions, the company remains committed to returning value to our shareholders and, in the third quarter of 2020, the company paid $321 million in dividends. As the company continues to execute on its plan to add sustainable annual free funds flow, the company plans to follow its capital allocation framework with a combination of future debt repayments, increasing shareholder returns and measured investments in economic projects.

Corporate Guidance

Suncor has updated its Corporate Guidance for the full year business environment outlook assumptions previously updated on September 7, 2020 for Brent Sullom Voe from US$43.00/bbl to US$41.00/bbl, WTI at Cushing from US$40.00/bbl to US$38.00/bbl, WCS at Hardisty from US$26.00/bbl to US$25.00/bbl and AECOC Spot from $2.25/GJ to $2.00/GJ, due to declines in key forward curve pricing for the remainder of the year. As a result of these updates, the full year current income tax recovery assumptions have changed from $500 million – $800 million to $650 million – $950 million.

KeyFacts Energy: Suncor Energy Canada country profile