Suncor Energy Starting To Deliver
Editor's note: Suncor has always been an excellent downstream operator. But since 2017, it has underperformed on the upstream side. The market has justifiably punished it, but with upstream now once again outperforming, I think this is a major turning point.
Note: Dollar references are to Canadian dollars unless otherwise specified.
Suncor’s Q4 Operational Update
Suncor Energy (SU) (SU:CA) didn’t waste any time updating the market on its continued operational progress. On Wednesday, the company announced it achieved its 2023 upstream production guidance after having previously guided to the low end of the range. Management guided to approximately 740,000 barrels per day (bpd) of full-year production in November, but a stellar fourth-quarter performance boosted the annual result to 746,000 bpd, exceeding analyst consensus expectations of between 730,000 and 735,000 bpd.
The most notable feature of the report, in our view, was the clear operating momentum Suncor now has in its formerly underperforming upstream segment. Fourth-quarter production of 808,000 bpd was the second-highest quarterly result in company history. December was extremely strong, with production averaging more than 900,000 bpd.
Upstream results were impressive all around. Suncor’s Firebag, Syncrude, and Fort Hills assets all achieved record annual production. The Fort Hills result was particularly meaningful, as the asset had underperformed for years. The project’s improved results reflect well on management’s decision to acquire the remaining 31.23% that Suncor didn’t own back in October. The asset’s fourth-quarter operating improvement makes the $1.47 billion acquisition price—made at an attractive $24,000 per flowing barrel—look even more attractive. Higher Fort Hills production will also increase the utilization rate of the Base Plant upgrader, providing a tailwind for the upgrader's operating margin.
Lastly in the upstream segment, Suncor announced it began the successful ramp-up of its Terra Nova project. The project, which was taken offline in 2020, stands to add 14,000 bpd to Suncor’s production when fully ramped.
In the downstream segment, fourth-quarter results were less impressive than upstream, but downstream performance has not deteriorated to the extent of upstream over recent years. Still, positive operating momentum was on display downstream, as well. Full-year 2023 refinery utilization came in at 90%, below management’s guidance of 92% to 96%, but utilization in the fourth quarter outperformed at 97%.