Suncor Performs Well in 4Q - Analyst Blog

A premier Canadian integrated energy company, Suncor Energy (SU) reported better-than-expected fourth quarter and full-year 2010 results, buoyed by higher oil sands volumes, greater product sales and better margins.

Earnings per share, excluding certain items, came in at 60 Canadian cents (60 cents US) in the fourth quarter, surpassing the Zacks Consensus Estimate of 50 cents and 22 Canadian cents earned in the prior-year quarter.

For full-year 2010, the company earned C$1.75 ($1.75) per share compared with 82 Canadian cents in the prior year . The results were also above our earnings projection of $1.56.

In the reported quarter, total revenue of C$9.79 billion ($9.81 billion) escalated 35.5% from the year-ago level and surpassed the Zacks Consensus Estimate of $9.07 billion. Full-year revenue leaped 38.2% year over year to $34.35 billion.

Cash flow from operations shot up to C$2.14 billion in the quarter from C$1.13 billion in the year-ago quarter, driven by increased production volumes as well as higher realized prices.

Production

Upstream production during the quarter averaged 625,600 barrels of oil equivalent per day (Boe/d), down from the prior-quarter level of 638,200 Boe/d. The low production was credited to asset disposition in the Natural Gas and International and Offshore businesses, partially offset by better performance from Oil Sands and production growth in International and Offshore operations.

Excluding proportionate production share from the Syncrude joint venture, oil sands volumes upped to 325,900 barrels per day (Bbl/d) from the prior-year quarter result of 278,900 Bbl/d, reflecting efficient operations of the Upgrader and improved bitumen supply from mining and in situ businesses.

Syncrude operations experienced a 4% year-over-year decline in production in the fourth quarter of 2010, mainly due to upgrader disruption.

Suncor's natural gas business produced an average of 429 million cubic feet equivalent per day (MMcfe/d), down 7% year over year.

International and offshore business units generated a 14% year-over-year growth in production, netting 170,100 Boe/d. Volumes benefited from the start-up of the Syrian gas project.

Balance Sheet and Capital Expenditures

As of December 31, 2010, Suncor had cash and cash equivalents of C$1.08 billion and total long-term debt of C$12.19 billion. The debt-to-capitalization ratio was approximately 24.9%.

Suncor incurred $1.87 billion in capital expenditure in the fourth quarter and $5.83 billion in full-year 2010.

Management guided toward capital expenditure of $6.7 billion for 2011. Of the total budget, about $2.8 billion will be used for funding growth projects, while the remaining $3.9 billion will be utilized for maintenance of existing operations and further deployment of new tailings reclamation technology.

Asset Sale Update

During the fourth quarter of 2010, Suncor closed the sale of certain non-core U.K. offshore assets for net proceeds of C$86 million. The company aims to complete the divesture of the remaining agreed non-core U.K. offshore assets in the first quarter of 2011.

Our Recommendation

Based in Canada, Suncor Energy has a balanced portfolio of high quality assets, a strong balance sheet and a significant growth prospect. The company is also favorably positioned to benefit from the recovery of the oil price scenario with the help of crude oil price leverage and lower operating costs.          

However, considering the company's high debt level, risk of project delays and competition from peers such as InterOil Corporation (IOC) and Ecopetrol SA (EC), we remain cautious for the long run, which is reflected through our Neutral recommendation.

Suncor currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.

 
ECOPETROL- ADR (EC): Free Stock Analysis Report
 
INTEROIL CORP (IOC): Free Stock Analysis Report
 
SUNCOR ENERGY (SU): Free Stock Analysis Report
 
Zacks Investment Research