Editor's Note: Suncor is the third-largest position in the HFI Portfolio. Link to the HFI Portfolio is at the bottom.
By: Jon Costello
Note: Dollar references are to Canadian dollars unless otherwise specified.
Suncor Energy’s (SU) performance has been so good that the main concern for its shareholders is whether management can keep the momentum going. The company is worthy of a Harvard case study due to the success and speed with which management has transformed an operation of such massive size and complexity.
True to form by now, Suncor set several operating records during the second quarter. These include upstream production of 808,000 bbl/d, refinery throughput of 442,000 bbl/d, and refined product sales of 600,500 bbl/d.
Since management assumed control of the company in the first half of 2023, Suncor has increased upstream production by 89,000 bbl/d, refinery throughput by 81,000 bbl/d, and refined product sales by 72,000 bbl/d. Any of these figures on their own would constitute a medium-sized standalone company.
Meanwhile, safety issues have been put to rest. This issue dogged the company before the current management team took over and was a sign of its chronic underperformance.
Suncor's financial performance was also impressive. Adjusted funds from operations during the quarter totaled $2.7 billion, down from $3.4 billion in the comparable quarter last year. This is a strong showing considering WTI averaged US$63.70 in the second quarter versus $80.55 in the same period last year. Free funds flow was $981 million compared to $1.9 billion.
Net debt stood at $7.6 billion, flat with the first quarter and below management’s long-term target of $8.0 billion.
Suncor distributed $1.45 billion in capital to shareholders, including $697 million in dividends and $750 million in share repurchases.
Operating costs decreased by $135 million in the first half of the year compared to 2024, and by $735 million compared to 2023, despite higher production and refinery throughput.
Capital efficiency is improving along with operating efficiency, as the company guided to full-year capex of $5.8 billion, $400 million less than its previous guidance.
Suncor’s performance was particularly impressive in light of the oil market turmoil that erupted early in the second quarter. Unlike many other energy companies, Suncor didn’t halt its share repurchase program. In fact, it appears to have increased repurchases, as dividends and share repurchases exceeded free funds flow by $459 million. This was precisely the right move given the opportunity at hand and the company’s underlying fundamental stability.