Suncor Energy Inc.
TSX : SU
NYSE : SU

Suncor Energy Inc.

26 janv. 2006 23h59 HE

Suncor Energy finishes 2005 with strong fourth quarter results

Stage set for record oil production in 2006

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 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. Base operations refer to oil sands mining and upgrading operations.

Calgary, Alberta (January 26, 2006) — Suncor Energy Inc. today announced 2005 earnings of $1.245 billion ($2.73 per common share), an increase from $1.088 billion ($2.40 per common share) in 2004. Excluding the effects of unrealized foreign exchange gains on the company's U.S. dollar denominated long-term debt, 2005 net earnings were $1.214 billion ($2.66 per common share) compared to $1.020 billion ($2.25 per common share) in 2004. Cash flow from operations in 2005 was $2.476 billion compared to $2.013 billion in 2004.

Net earnings in 2005 compared to 2004 reflect higher benchmark crude oil and natural gas prices, the receipt of insurance payments relating to a January 2005 fire at Suncor's oil sands facilities and lower hedging losses. These positive impacts were largely offset by lower production due to the impact of the fire, higher maintenance expenses, higher energy costs in the oil sands operation and the impact of a stronger Canadian dollar. The increase in cash flow from operations in 2005 compared to 2004 was due to the same factors that impacted net earnings.

"We got past a difficult start to 2005 and had a strong finish to the year by making major progress on our growth plans and achieving record quarterly production in the fourth quarter," said Rick George, president and chief executive officer. "We are well positioned to carry that momentum into a strong 2006."

2005 Overview

  • In September, Suncor completed rebuilding portions of its oil sands facility damaged in a January fire, returning to full production capacity.

  • In October, Suncor successfully commissioned an expansion of its oil sands facilities, increasing production capacity to 260,000 barrels per day (bpd) from the previous capacity of 225,000 bpd. The expansion was completed on schedule and on budget at a total cost of approximately $450 million1. Work throughout 2005 to further increase production capacity to a planned 350,000 bpd in 2008 continued on schedule and on budget. 

  • Suncor's combined oil sands and natural gas production in 2005 was 206,100 barrels of oil equivalent (boe) per day, compared to 263,300 boe per day in 2004. Oil sands production averaged 171,300 bpd in 2005, compared to 226,500 bpd in 2004. Natural gas production averaged 190 million cubic feet (mmcf) per day, about 10% below target due to unplanned maintenance, and to weather related drilling delays that impacted the western Canadian industry. In 2004, Suncor produced an average 200 mmcf of natural gas per day.

  • By mid-October 2005, all bitumen production from Suncor's in-situ operations was being upgraded to higher-value synthetic crude products.

  • Cash operating costs from oil sands base operations averaged $19.50 per barrel during 2005 compared to $11.95 per barrel in 2004. The increase in 2005 was primarily due to fixed operating costs being spread over lower production volumes, higher maintenance related expenses and the impact of higher natural gas costs.

  • Suncor continued to advance plans to modify both its Sarnia and Commerce City refineries to meet low-sulphur fuels regulations and to enable the facilities to process higher volumes of oil sands sour crude blends. The Commerce City facility was expanded in May with the acquisition of a neighbouring refinery from Valero Energy Corporation.

  • Refining margins averaged 7.6 cents per litre (cpl) for Canadian operations and 9.0 cpl for U.S. operations. This compares to 8.0 cpl for Canadian operations and 6.7 cpl for U.S. operations during 2004. Retail gasoline margins averaged 5.1 cpl for both Canadian and U.S. operations in 2005, compared to 4.4 cpl for Canadian operations and 5.4 cpl for U.S. operations the year before.

  • Maintaining a strong balance sheet remained a priority in 2005. Despite the impact of costs associated with the fire recovery and a $2.8 billion capital spending program, Suncor's net debt (including cash and cash equivalents) at December 31, 2005 was $2.9 billion (approximately 1.2 times cash flow from operations).  Year-end net debt in 2004 was $2.2 billion (approximately 1.1 times cash flow from operations).

  • Suncor achieved a company-wide return on capital employed of 20.9% in 2005 (excluding capitalized costs for major projects in progress), compared to 19% in 2004.

1. Generally, when projects receive final Board of Directors approval, cost estimates have a range of uncertainty of -10% / +10% or similar range. These ranges establish an expected high and low capital cost estimate for a project. When Suncor says that a project is completed "on budget", it means the final project capital cost falls within the range of uncertainty for the project.

Fourth Quarter 2005

Suncor's net earnings for the fourth quarter of 2005 were $694 million ($1.52 per common share) compared to $333 million ($0.73 per common share) in the fourth quarter of 2004. Excluding the effects of unrealized foreign exchange gains on the company's U.S. dollar denominated long-term debt, fourth quarter net earnings were $698 million ($1.53 per common share) compared to $283 million ($0.62 per common share) during the fourth quarter, 2004. Cash flow from operations for the fourth quarter of 2005 was $1.226 billion, compared to $524 million in the fourth quarter of 2004.

Net earnings increased in the fourth quarter of 2005 compared to 2004 due to increased production, higher benchmark crude oil and natural gas prices, the receipt of fire insurance proceeds and lower hedging losses, partially offset by higher maintenance related costs, higher energy costs in our oil sands operation and the impact of a stronger Canadian dollar. The increase in cash flow from operations in the fourth quarter of 2005 compared to the fourth quarter of 2004 was due to the same factors that impacted net earnings.

Suncor's combined oil sands and natural gas production for the fourth quarter was 302,700 boe per day, compared to 258,600 boe per day in the same period of 2004. Oil sands production in the fourth quarter averaged 267,700 bpd at a cash operating cost of $18.00 per barrel for base operations. In 2004, fourth quarter production averaged 222,500 bpd at a cash operating cost of $13.20 per barrel for base operations. Natural gas production averaged 193 mmcf per day in the fourth quarter of 2005, unchanged from the fourth quarter of 2004.

In the downstream, fourth quarter refining margins averaged 9.0 cpl for Canadian operations and 10.4 cpl for U.S. operations. This compares to 7.9 cpl for Canadian operations and 7.7 cpl for U.S. operations during the fourth quarter of 2004. Retail gasoline margins averaged 6.4 cpl for Canadian operations and 5.4 cpl for U.S. operations. This compares to 4.5 cpl for Canadian operations and 6.0 cpl for U.S. operations in the fourth quarter of 2004.

Outlook

"In the year ahead, Suncor intends to continue our proven strategy of staged resource development, expanding upgrading capacity and extending our reach into the North American market," said George. 

Suncor's outlook provides management's targets for 2006 in certain key areas of the company's business. Outlook targets are subject to change.


2006 Full Year Outlook


Oil Sands

Production (bpd)1

260,000

  diesel2

11%

  sweet2

45%

  sour2

44%

Realization on crude sales basket

WTI @ Cushing less Cdn$5.50 to $6.50 per barrel

Cash operating costs3

$16.00 to $16.75 per barrel


Natural Gas

natural gas (mmcf/d) 205 to 210


1. The 260,000 bpd target consists entirely of synthetic crude oil barrels. Suncor's current plans call for all bitumen produced by the company to be upgraded to synthetic crude oil. However, Suncor-produced bitumen may be sold directly to the market depending on certain market or operational conditions.

2. Suncor is still gaining experience in operating facilities that were newly commissioned in late 2005. As a result, there is more uncertainty in providing 2006 targets than in previous years, especially as it relates to sour crude volumes.

3. Previously, Suncor reported separate cash operating cost calculations for base operations (mining and upgrading) and in-situ bitumen production (see "Non GAAP Financial Measures" for 2005 details). For 2006, cash operating cost projections and results will reflect combined costs for both mining and in-situ operations. Cash operating costs also now include approximately $1.50 per barrel for research and development and self-insurance program costs. In prior years, these costs were not included in cash or total operating costs.

Cash operating costs are sensitive to natural gas prices. The estimate of $16.00 to $16.75 per barrel assumes a natural gas price of US$6.75 per thousand cubic feet (mcf) at Henry Hub. For every U.S. dollar increase in natural gas price per mcf, Suncor expects a $0.50 per barrel increase in operating costs, assuming all other factors remain unchanged. Cash operating costs per barrel are not prescribed by 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. Accordingly, we will also continue to provide cash operating cost calculations for Firebag in-situ operations. 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".

Factors that could potentially impact Suncor's financial performance in 2006 include:

  • Final timing of the settlement and payment of insurance proceeds related to the January 2005 oil sands fire. There is no specific schedule for the balance of the payments.

  • Crude oil hedges. At December 31, 2005, Suncor had entered into previously announced crude oil hedging agreements for 7,000 bpd during 2006 and 2007. In January 2006, the company entered into additional hedging agreements bringing total hedged crude oil production to 25,000 bpd for the remainder of 2006 and 2007.These hedge agreements lock in a minimum price of US$50 per barrel WTI while allowing participation in higher crude prices to an average of approximately US$91 per barrel. Suncor will consider future hedges of up to 30% of crude oil production if strategic opportunities are available

  • Planned maintenance work and tie-in of modified facilities at Suncor's Sarnia and Commerce City refineries. Should the work take longer than planned or be impacted by labour or material supply issues, capital costs and refined product sales could be impacted.

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

 
2005

2004

2005

2004

Net earnings before the following items


590


283


858


981

Firebag in-situ start-up costs1

(4)

-

(4)

(14)

Oil Sands fire accrued insurance proceeds


112


-


360


-

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



-



-

 

-

 

53

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

 

(4) 

 

50

 

31

 

68

Net earnings as reported

694

333

1 245

1 088

Net earnings per share attributable to common shareholders as reported

 

$1.52

 

$0.73

 

$2.73

 

$2.40

1. Before deduction of Alberta Crown Royalties

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 2005 financial statements. Amounts for base and in-situ operations reconcile to the schedules of segmented data when combined.

View the Oil Sands reconciliation table (Microsoft Excel)

Return on Capital Employed

Net earnings (2005 — $1.245 billion; 2004 — $1.088 billion) adjusted for after-tax financing expenses (2005 — income of $16 million; 2004 — expense of $1 million) for the twelve month period ended; divided by average capital employed (2005 — $5.876 billion; 2004 — $5.721 billion). Average capital employed is the sum of shareholders' equity and short-term debt plus long-term debt less cash and cash equivalents, at the beginning and end of the year, divided by two, less average annual capitalized costs related to major projects in progress (as applicable).  For more detail on how ROCE is calculated, see page 51 of Suncor's 2004 Annual Report.


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


Fourth Quarter

Years ended
December 31

2005

2004

2005

2004

Cash flow from operations ($ millions)

A

1 226

524

2 476

2013

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

 

B

 

457

 

454

 

456

 

453

Cash flow from operations - basic
(per share)

A/B

2.68

1.15

5.43

4.44

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 "positioned", "planned", outlook", "target", "expect", "intends", "call for" ,"stage set", "may" 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
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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.