Suncor(SU) - 2022 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Suncor reported the highest quarterly adjusted funds from operations in its history at approximately $5.3 billion or $3.80 per share, with free funds flow after capital expenditures of $4.1 billion or $2.88 per share [12][20] - The company returned $3.2 billion or nearly 60% of adjusted funds from operations through dividends and share buybacks back to shareholders [20] - Net debt increased due to FX translation loss from the weaker Canadian dollar, but the company expects to achieve a $12 billion net debt target in the second half of the year [21][22] Business Line Data and Key Metrics Changes - Upstream production was 720,000 barrels per day, with oil sands operations producing 365,000 barrels per day, impacted by planned maintenance and unplanned events [13] - Syncrude production reached 189,000 barrels per day, exceeding plans, while Fort Hills produced 87,000 barrels per day, in line with expectations [14] - Downstream operations generated record adjusted funds from operations, with throughput of 389,000 barrels per day reflecting planned maintenance and unplanned events [15] Market Data and Key Metrics Changes - Upstream realizations were on par with WTI, and downstream captured strong product market values with near 100% market capture [12] - The average price realized for SCO was CAD 141 per barrel, and for bitumen, it was CAD 120 per barrel, both trending above headline benchmarks [22] Company Strategy and Development Direction - The company aims to optimize and sustain its base business while increasing shareholder returns, reducing its carbon footprint, and investing in lower carbon energy [9] - Suncor is reviewing options for its retail business to maximize long-term value for shareholders and plans to disclose results in the fourth quarter [10] - The company signed a sales agreement for its Norway assets for approximately $400 million and is in the final round of selling its wind assets [11] Management's Comments on Operating Environment and Future Outlook - Management emphasized the importance of improving safety and operating performance, with a commitment to building a better safety culture [8][27] - The company is focused on executing changes necessary to improve performance and deliver expected value to shareholders [7] - Management acknowledged headwinds from higher commodity costs and inflation but noted good progress on initiatives [10] Other Important Information - The company updated its annual production guidance to 740,000 to 760,000 barrels per day and capital guidance to a range of $4.9 billion to $5.2 billion for 2022 [17][18] Q&A Session Summary Question: Can you shed light on safety initiatives and what has been uncovered? - Management discussed in-depth safety assessments and ongoing initiatives to improve safety, including investment in technologies and strengthening risk management systems [35][36] Question: Current status update on oil sands, Fort Hills, and Syncrude? - Management provided updates on strong performance in Syncrude and ongoing maintenance in Fort Hills, with some reliability issues persisting in base plant operations [37][38] Question: Clarification on CapEx increase? - The increase in capital guidance was attributed to the West White Rose project restart, increased spending on turnarounds, and general inflationary pressures [42][44] Question: Status of free cash flow and buybacks? - Management confirmed a focus on buybacks in the second quarter, with plans to shift towards debt reduction in the latter half of the year [45] Question: Impact of CapEx on safety and technology initiatives? - Management indicated ongoing programs for safety improvements and technology implementation, with a focus on accelerating these initiatives where feasible [48][49] Question: Key differences in safety records compared to peers? - Management highlighted that safety issues stem from execution in the field rather than underinvestment in technology, emphasizing the need for robust controls and engagement at the front line [58][60] Question: Why is $9 billion the hard floor for net debt? - The rationale for the $9 billion net debt target is based on historical cash flow generation in low commodity price environments [64] Question: Impact of retail sale on downstream margins? - Management stated that the review of the retail business will consider its impact on downstream margins and overall business value [68] Question: Status of turnaround cycles post-pandemic? - Management confirmed that there are no deferrals from the pandemic, and the company is on a regular turnaround cycle [74] Question: Source of working capital headwind in Q2? - The headwind was primarily price-related, affecting accounts receivable and inventory valuations, with expectations for improvement in the latter half of the year [75]