Suncor Energy - Better Days Ahead
Note to readers: All dollar references in this article are to Canadian dollars except for references to WTI in U.S. dollars.
Suncor Energy (SU) is a rare breed among E&Ps. It offers a high yield as well as outsized prospects for appreciation amid the higher oil prices we expect in the second half of the year. The company’s superior operating model generates enough free cash flow to render its dividend safe as long as WTI trades above $60 per barrel. At the moment, Suncor stock yields 5.3% at Friday’s closing price of $38.87. Its dividend is set to rise as the company hits management’s debt targets. We rate Suncor as a Buy with a price target of $53 per share.
Suncor Reports Standout Q1 Earnings vs. Peers
Suncor was the standout performer among publicly-listed Canadian oil sands operators, reporting first-quarter results that exceeded expectations. The company’s cash flow per share came in at $2.26, which was 6% above the consensus estimate of $2.14.
Suncor’s upstream production of 742,100 barrels per day (bpd) was in line with expectations, while its refinery throughput of 367,700 came in slightly short of expectations due to a slower-than-expected ramp of its refinery in Commerce City, Colorado. The slow ramp caused refinery utilization to fall to 79% from 94% in the prior-year period. The Commerce City refinery returned to normal operations by the end of the first quarter, so throughput should return to the mid-90s% going forward. Management trimmed full-year non-bitumen oil production by 15,000 bpd due to the delay of the restart of Suncor’s Terra Nova project in offshore Newfoundland.
A comparison of Suncor’s first quarter with previous quarters is shown in the table below.
First-quarter operating performance was solid overall. SG&A costs rose by 10.9% year-over-year, mostly due to the unplanned maintenance costs stemming from the Commerce City refinery outage and cost inflation. Otherwise, the results were weaker than previous quarters, mainly due to low crude realizations brought about by lower oil prices and a wide WTI-WCS differential.