Suncor Energy Inc.
TSX : SU
NYSE : SU

Suncor Energy Inc.

25 janv. 2007 23h59 HE

Record production and strong commodity prices contribute to solid 2006 financial results for Suncor Energy

All financial figures are unaudited and in Canadian dollars unless noted otherwise. Certain prior period amounts have been restated to conform to the current year's presentation. Certain financial measures referred to in this document, including return on capital employed and cash operating costs, are not prescribed by Canadian generally accepted accounting principles (GAAP). For a description of these measures, see "Non GAAP Financial Measures" in this document. This document makes reference to barrels of oil equivalent (boe). A boe conversion ratio of six thousand cubic feet of natural gas: one barrel of crude oil is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Accordingly, boe measures may be misleading, particularly if used in isolation.

Calgary Alberta (January 25, 2007) — Suncor Energy Inc. today reported 2006 net earnings of $2.971 billion ($6.47 per common share), an increase from $1.158 billion ($2.54 per common share) in 2005. Excluding the effects of insurance proceeds, the reduction of federal and Alberta income tax rates and unrealized foreign exchange gains on the company's U.S. dollar denominated long-term debt, 2006 net earnings were $2.320 billion ($5.05 per common share) compared to $834 million ($1.83 per common share) in 2005. Cash flow from operations in 2006 was $4.533 billion compared to $2.476 billion in 2005.

The increase in both net earnings and cash flow from operations primarily reflects higher crude oil production and higher crude oil prices in 2006. In 2005, Suncor's operational and financial performance was impacted by a fire that cut production rates approximately in half for close to eight months, while in 2006, Suncor also benefited from an expansion project that resulted in increased production capacity.

"After a difficult year in 2005, we came back strong and went on to achieve a record level of production in 2006," said Rick George, president and chief executive officer. "The focus now is on the fundamentals — steady, safe and reliable operations as we continue to build the foundation for future growth."

2006 Overview

§         Combined oil sands and natural gas production in 2006 was 294,800 barrels of oil equivalent (boe) per day, compared to 206,100 boe per day in 2005. Oil sands production averaged 260,000 barrels per day (bpd) in 2006 (253,800 bpd of synthetic crude oil and 6,200 bpd of bitumen sold directly to the market), compared to 171,300 bpd in 2005. Natural gas production averaged 191 million cubic feet (mmcf) per day, compared to an average 190 mmcf per day in 2005.

§         Oil sands cash operating costs averaged $21.70 per barrel during 2006 compared to $24.55 per barrel in 2005. The decrease in 2006 was primarily due to fixed operating costs being spread over higher production volumes, as well as lower natural gas costs.

§         Suncor continued to make progress on the expansion of Upgrader 2. Engineering work on the project, which is expected to increase production capacity to 350,000 bpd in 2008, is substantially complete and construction is 69% complete. The project remains on schedule and within budget.

§         Average daily in-situ bitumen production from Suncor's Firebag facilities increased to 33,700 bpd from 19,100 bpd in 2005.

§         Plans for Suncor's next major stage of oil sands growth were also advanced in 2006 with receipt of regulatory approval for a planned third upgrader and extension of the Steepbank Mine, two key components in the company's plan to increase production to 500,000 to 550,000 bpd in 2010 to 2012.

§         In its U.S. downstream operations, Suncor completed modifications in June to the company's Commerce City (Denver) refining operation that enabled production of ultra low sulphur diesel fuel and the integration of up to 10,000 to 15,000 bpd of oil sands sour crude into the refinery's feedstock.

§         In Suncor's Canadian downstream operations, modifications were completed in July to enable the company's Sarnia refinery to meet ultra low sulphur diesel requirements. The second stage of this project, slated for completion in the fourth quarter of 2007, is planned to integrate up to 40,000 bpd of oil sands sour crude into the facility's feedstock and to improve the economic performance of the refinery.

§         While continuing to expand its integrated oil sands and downstream refining and marketing businesses, Suncor also made advances in its renewable energy strategy with the opening of Canada's largest ethanol plant and the commissioning of its third wind farm. Further investment in ethanol-based biofuels and a fourth wind farm are planned for 2007. 

§         Maintaining a strong balance sheet remained a priority in 2006. Suncor's net debt (including cash and cash equivalents) at December 31, 2006 was $1.9 billion (approximately 0.4 times cash flow from operations). Year-end net debt in 2005 was $2.9 billion (approximately 1.2 times cash flow from operations).

§         Suncor achieved a company-wide return on capital employed of 40.6% in 2006 (excluding capitalized costs for major projects in progress), compared to 19.7% in 2005.

Fourth Quarter 2006

Suncor's net earnings for the fourth quarter of 2006 were $358 million ($0.78 per common share) compared to $693 million ($1.52 per common share) in the fourth quarter of 2005. Excluding the effects of insurance proceeds and unrealized foreign exchange gains on the company's U.S. dollar denominated long-term debt, fourth quarter net earnings were $374 million ($0.81 per common share) compared to $599 million ($1.31 per common share) during the fourth quarter of 2005. Cash flow from operations for the fourth quarter of 2006 was $746 million, compared to $1.226 billion in the fourth quarter of 2005.

The decrease in net earnings primarily reflects higher oil sands operating costs as a result of increased levels of maintenance activity and higher labour expenses during the fourth quarter. Company-wide fourth quarter net earnings were also negatively impacted by lower earnings in the Natural Gas business and the impact of maintenance activities in Suncor's downstream operations. The decrease in cash flow from operations in the fourth quarter of 2006 compared to the fourth quarter of 2005 was due to the same factors that impacted net earnings during this period.

Suncor's combined oil sands and natural gas production for the fourth quarter was 301,100 boe per day, compared to 302,700 boe per day in the same period of 2005. Natural gas production averaged 192 mmcf per day in the fourth quarter of 2006, relatively steady compared to the 193 mmcf per day recorded in the fourth quarter of 2005. Oil sands production in the fourth quarter of 2006 averaged 266,400 bpd, consisting of 256,700 bpd of synthetic crude oil and 9,700 bpd of bitumen sold directly to the market. Oil sands production in the fourth quarter of 2005 averaged 267,700 bpd, consisting of 260,500 bpd of synthetic crude oil and 7,200 bpd of bitumen sold directly to the market.

Fourth quarter 2006 oil sands cash operating costs were $25.65 per barrel, compared to $20.90 per barrel in the same period of 2005. Cash operating costs per barrel were higher in 2006 primarily as a result of the same factors impacting total oil sands operating costs, as noted above.

In Suncor's Canadian downstream operations, a shutdown of the Sarnia refinery to tie-in modified facilities was completed on December 22. The work, which began in early September, was undertaken in stages to allow the facility to continue production at reduced rates.

As part of the company's long-range planning, Suncor elected in late 2006 to transition to the Government of Alberta's generic bitumen-based royalty in 2009.

Outlook

Suncor's outlook provides management's targets for 2007 in certain key areas of the company's business. Outlook forecasts, which are updated quarterly, are subject to change.


2007 Full Year Outlook


Oil Sands

Production (bpd)1

260,000 to 270,000

  diesel

10%

  sweet

42%

  sour

43%

  bitumen   5%

Realization on crude sales basket

WTI @ Cushing less
Cdn$7.50 to $8.50 per barrel

Cash operating costs2

$21.50 to $22.50 per barrel


Natural Gas

natural gas3
(mmcf equivalent per day)
215 to 220


1. The 2007 oil sands production target includes approximately 5% non-upgraded bitumen sold directly to the market. In 2006, the production target referred only to synthetic crude oil production.

2. Cash operating cost estimates are based on the following assumptions: i) production of 260,000 to 270,000 bpd; ii) a production sales mix as described in the chart above; and iii) a natural gas price of US$7.60 per thousand cubic feet (mcf) at Henry Hub. Cash operating costs per barrel are not prescribed by Generally Accepted Accounting Principles (GAAP). This non-GAAP financial measure does not have any standardized meaning and therefore is unlikely to be comparable to similar measures presented by other companies. Suncor includes this non-GAAP financial measure because investors may use this information to analyze operating performance. This information should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. See "Non-GAAP Financial Measures".

3. The 2007 production target includes natural gas liquids (NGL) and crude oil converted into mmcf equivalent at a ratio of one barrel of NGL/crude oil: six thousand cubic feet of natural gas. This mmcf equivalent may be misleading, particularly if used in isolation. A conversion ratio of one barrel of NGL/crude oil: six thousand cubic feet of natural gas is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.


Factors that could potentially impact Suncor's financial performance include:

 

  • Crude oil hedges. Suncor has hedging agreements for 60,000 bpd in 2007. These costless collar hedges have an average floor of approximately US$51.64 per barrel while allowing participation in higher crude oil prices with an average ceiling of approximately US$93.26 per barrel. The company will consider future costless collars up to 30% of annual planned crude oil production if strategic opportunities are available.
     
  • Scheduled tie-ins of modified facilities at Suncor's oil sands operation are planned during 2007. Upgrader 2 is expected to be shut down for approximately 50 days in the second quarter while this work is under way. During the outage, Upgrader 1 is expected to continue normal production. Although this shutdown is reflected in operational targets for the year, production estimates could be impacted if the work takes longer than planned or is impacted by labour or material supply issues. The tie-in work is required to enable production capacity to be increased to a planned 350,000 bpd in 2008. 
     
  • Scheduled tie-ins of modified facilities at Suncor's refineries. Suncor plans to begin a shutdown of the Sarnia refinery in the third quarter of 2007 (with completion scheduled in the fourth quarter of 2007) to tie-in modified facilities that are expected to enable the facility to process up to 40,000 bpd of oil sands sour crude.  

Further discussion of the risks, uncertainties and other factors that could affect these plans, and any actual results, is included in Suncor's annual report to shareholders and other documents filed with regulatory authorities.

 

Net Earnings Components

This table sets forth some of the factors impacting Suncor's net earnings. For comparability purposes, readers should rely on the reported net earnings that are presented in the company's consolidated financial statements and notes in accordance with Canadian GAAP. The company's fourth quarter financial statements (unaudited) can be obtained at www.suncor.com or by calling 1-800-558-9071.

($ millions after tax - unaudited)


Fourth Quarter

Years ended
December 31

 
2006

2005

2006

2005

Net earnings before the following items


374


603


2 333


838

Firebag Stage 2 start-up costs

-

(4)

(13)

(4)

Oil Sands fire accrued insurance proceeds1


27


98


232
 


293

Impact of income tax rate reductions on opening future income tax liabilities2



-



-

 

419

 

-

Unrealized foreign exchange gain (loss) on U.S. dollar denominated long-term debt

 

(43) 

 

(4)

 

-

 

31

Net earnings as reported

358

693

2 971

1 158

Net earnings per share attributable to common shareholders as reported

 

$0.78

 

$1.52

 

$6.47

 

$2.54


1. Net accrued property loss and business interruption proceeds net of income taxes and Alberta Crown royalties.

2. Impacts of the federal and Alberta income tax rate changes enacted in the second quarter of 2006.

Non GAAP Financial Measures

Suncor includes cash and total operating cost per barrel data, return on capital employed (ROCE) and cash flow from operations because investors may use this information to analyze operating performance, leverage and liquidity. The additional information may not be comparable to similar measures presented by other companies and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles. Cash flow from operations is expressed before changes in non-cash working capital. A reconciliation of net earnings to cash flow from operations is provided in the schedules of segmented data, which are an integral part of the company's fourth quarter financial statements.

The following table outlines the reconciliation of oil sands cash and total operating costs to expenses included in the schedules of segmented data in the company's fourth quarter 2006 financial statements.

 

View the oil sands cash operating costs reconcillation to GAAP (Excel)


Reconciliation of cash flow from operations on a per share basis (unaudited)


Fourth Quarter

Years ended
December 31

2006

2005

2006

2005

Cash flow from operations ($ millions)

A

746

1 226

4 533

2 476

Weighted average number of common shares outstanding - basic (millions of shares)

 

B

 

460

 

457

 

459

 

456

Cash flow from operations - basic
(per share)

A/B

1.62

2.68

9.87 

5.43

 

Suncor Energy Inc. is an integrated energy company headquartered in Calgary, Alberta. Suncor's oil sands business, located near Fort McMurray, Alberta, extracts and upgrades oil sands and markets refinery feedstock and diesel fuel, while operations throughout Western Canada produce natural gas. Suncor operates a refining and marketing business in Ontario with retail distribution under the Sunoco brand. U.S.A. downstream assets include refining operations in Colorado and retail sales in the Denver area under the Phillips 66 brand. Suncor's common shares (symbol: SU) are listed on the Toronto and New York stock exchanges.

Suncor Energy (U.S.A.) Inc. is an authorized licensee of the Phillips 66 brand and marks in the state of Colorado. Sunoco in Canada is separate and unrelated to Sunoco in the United States, which is owned by Sunoco, Inc. of Philadelphia.

This document contains forward-looking statements that address goals, expectations or projections about the future. These statements are based on Suncor's current goals, expectations, estimates, projections and assumptions, as well as its current budgets and plans for capital expenditures. Some of the forward-looking statements may be identified by words like  "planned", outlook", "target", "expect", "intends", "will consider", "could",  "may", "slated", "scheduled" and similar expressions. These statements are not guarantees of future performance. Actual results could differ materially, as a result of factors, risks and uncertainties, known and unknown, to which Suncor's business is subject. These could include: changes in general economic, market and business conditions; potential labour and material supply issues; fluctuations in supply and demand for Suncor's products; fluctuations in commodity prices and currency exchange rates; the impact of stakeholder consultation; the regulatory process; technical issues; environmental issues; technological capabilities; new legislation; the occurrence of unexpected events; Suncor's capability to execute and implement its future plans; and changes in current plans. Further discussion of the risks, uncertainties and other factors that could affect these plans, and any actual results, is included in Suncor's annual report to shareholders, Annual Information Form/Form 40-F and other documents filed with regulatory authorities. Suncor disclaims any intentions or obligations to update or reuse any forward-looking statements whether as a result of new information, future events or otherwise.

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Investor inquiries 
John Rogers  
tel: 403-269-8670

Media inquiries
Brad Bellows
tel: 403-269-8717

This news release, including financial statements and notes (unaudited) can be obtained at www.suncor.com/financialreporting or by calling 1-800-558-9071 toll-free in North America.

To listen to the conference call discussing Suncor's fourth quarter results, visit www.suncor.com/webcasts.