Suncor Energy has today reported financial and operating results for the fourth quarter of 2020.

“Suncor delivered strong operational results during the fourth quarter, reflecting improved performance across our assets in November and December following the completion of significant maintenance at the end of October,” said Mark Little, president and chief executive officer. “We also exceeded our operating cost reduction target, met our full year capital reduction target, executed on key strategic projects, and reaffirmed our commitment to significantly reduce our debt and increase returns to shareholders through our share repurchase program in 2021.”

• Funds from operations increased to $1.221 billion ($0.80 per common share) in the fourth quarter of 2020, from $1.166 billion ($0.76 per common share) in the third quarter of 2020, and includes a $186 million ($0.12 per common share) transportation provision related to the Keystone XL pipeline project. Funds from operations were $2.553 billion ($1.66 per common share) in the prior year quarter. Funds from operations during the fourth quarter of 2020 exceeded the company’s sustaining capital and dividend payments. Cash flow provided by operating activities, which includes changes in non-cash working capital, was $814 million ($0.53 per common share) in the fourth quarter of 2020, compared to $2.304 billion ($1.50 per common share) in the prior year quarter.
• The company recorded an operating loss of $142 million ($0.09 per common share) in the fourth quarter of 2020, compared to an operating loss of $302 million ($0.20 per common share) in the third quarter of 2020 and operating earnings of $782 million ($0.51 per common share) in the prior year quarter. The company had a net loss of $168 million ($0.11 per common share) in the fourth quarter of 2020, which included a $539 million unrealized after-tax foreign exchange gain on the revaluation of U.S. dollar denominated debt, a non-cash impairment charge of $423 million after-tax due to the high degree of uncertainty surrounding the future of the West White Rose Project and a $142 million after-tax transportation provision related to the Keystone XL pipeline project. The net loss in the prior year quarter was $2.335 billion ($1.52 per common share), which included non-cash impairment charges of $3.352 billion after-tax related to Fort Hills and the West White Rose Project.
• The company exceeded its previously announced operating cost reduction target, reducing annual operating costs by $1.3 billion (approximately 12%) in 2020, compared to 2019 levels, and met its capital reduction target, reducing annual capital expenditures by $1.9 billion (approximately 33%) in 2020 compared to the original 2020 capital guidance midpoint. The company delivered a number of strategic initiatives within this target that enhanced integration between Suncor and Syncrude, expanded the company’s market reach, debottlenecked In Situ facilities and its Edmonton refinery, and reduced structural operating costs by leveraging technology.
• Reliable operations drove refinery utilization of 95% in the fourth quarter of 2020, compared to 87% in the third quarter of 2020 and 97% in the prior year quarter. Suncor leveraged its strong domestic sales network and export channels, including integration with the retail network, within its downstream business to achieve higher utilization rates which continued to outperform the Canadian refining average in the fourth quarter of 2020.
• During the fourth quarter of 2020, Suncor’s total upstream production was 769,200 barrels of oil equivalent per day (boe/d) compared to 778,200 boe/d in the prior year quarter. The company’s synthetic crude oil (SCO) production increased to 514,300 barrels per day (bbls/d) in the fourth quarter of 2020 from 456,300 bbls/d in the fourth quarter of 2019, marking the second best quarter of SCO production in the company’s history. Together, the Syncrude and Oil Sands operations upgraders achieved combined upgrader utilization of 95% in the fourth quarter of 2020, compared to 83% in the prior year quarter, due to strong reliability at Syncrude and Oil Sands Base ramping up to full operating rates following the completion of maintenance early in the quarter.
• At Firebag, work to expand the capacity of the facility by 12,000 bbls/d was completed, enabling the asset to produce near its new nameplate capacity of 215,000 bbls/d exiting the quarter. In addition, at the company’s Edmonton refinery, the nameplate capacity was increased from 142,000 bbls/d to 146,000 bbls/d, subsequent to the fourth quarter of 2020, as a result of debottlenecking activities.
• The Syncrude joint venture owners reached an agreement in principle for Suncor to take over as operator of the Syncrude asset by the end of 2021. Suncor, together with the other Syncrude joint venture owners, will continue to drive operating efficiencies, improve performance and develop regional synergies through integration. By capitalizing on the collective strength of our regional operations, annual synergies of $300 million gross are expected.
• The interconnecting pipelines between Suncor’s Oil Sands Base and Syncrude were brought into service in the fourth quarter of 2020. Transfers began in December 2020 reflecting the enhanced integration and operational flexibility between these assets.
• Suncor will remain disciplined in its capital allocation and, at current commodity prices, plans to pay down between $1.0 billion and $1.5 billion of debt and repurchase between $500 million and $1.0 billion of the company’s shares in 2021, signifying the company’s ability to generate cash flow and confidence in the underlying value of the company. Subsequent to the end of the quarter, the Toronto Stock Exchange (TSX) accepted a notice to commence a normal course issuer bid (NCIB) for up to 44,000,000 common shares.
• Subsequent to the fourth quarter of 2020, Suncor’s Board of Directors approved a quarterly dividend of $0.21 per common share.

Funds from Operations and Cash Flow Provided By Operating Activities

Funds from operations were $1.221 billion ($0.80 per common share) in the fourth quarter of 2020, compared to $2.553 billion ($1.66 per common share) in the fourth quarter of 2019, and includes a $186 million ($0.12 per common share) transportation provision related to the Keystone XL pipeline project. Funds from operations were influenced by the same factors impacting operating (loss) earnings noted above.

Cash flow provided by operating activities, which includes changes in non-cash working capital, was $814 million ($0.53 per common share) for the fourth quarter of 2020, compared to $2.304 billion ($1.50 per common share) in the prior year quarter.

Operating Results

During the fourth quarter of 2020, Suncor’s total upstream production was 769,200 boe/d compared to 778,200 boe/d in the prior year quarter.

SCO production increased to 514,300 bbls/d in the fourth quarter of 2020 from 456,300 bbls/d in the fourth quarter of 2019, marking the second best quarter of SCO production in the company’s history and resulted in a combined upgrader utilization rate of 95% in the fourth quarter of 2020 compared to 83% in the prior year quarter. Increased production in the fourth quarter of 2020 was primarily due to strong reliability at Syncrude and Oil Sands Base ramping up to full operating rates. Following the completion of maintenance activities early in the quarter, the company achieved combined upgrader utilization of 102% in November and December of 2020. Both periods were impacted by planned maintenance at Oil Sands operations while the prior year quarter was impacted by planned maintenance at Syncrude. SCO production was further supported by increased In Situ bitumen production diverted to the upgrader to maximize the production of higher value SCO barrels. Increased upgrader utilization impacted total Oil Sands production due to the yield loss associated with the bitumen upgrading process. Despite the impact on our production volumes and cost per barrel metrics, the result of this strategy had a positive impact on overall funds flow and reflects our value over volume approach.

Non-upgraded bitumen production decreased to 157,200 bbls/d in the fourth quarter of 2020 from 206,000 bbls/d in the fourth quarter of 2019, as bitumen production from Firebag was diverted to the upgrader to maximize value over volume and maintenance activities were completed at Firebag early in the quarter. Production in the fourth quarter of 2020 was also impacted by lower production at Fort Hills as the asset commenced the phased ramp up to two primary extraction trains providing additional volumes at low incremental operating costs. The maintenance activities at Firebag have expanded the capacity of the facility through the installation of new incremental emulsion handling and steam infrastructure and also addressed plant restrictions that developed during the third quarter of 2020. Building on Suncor’s commitment to operational excellence, the company exited the quarter with strong In Situ bitumen production, with both Firebag and MacKay River operating at near nameplate capacity.

Throughout 2020, Suncor continued to maintain its focus on value over volume, leveraging its broad asset base and operational flexibility to maximize the value of its allotted barrels under the Province of Alberta’s mandatory curtailment program. The company optimized the transfer of its allotted curtailment credits among the company’s assets, which helped the company achieve the second best year of SCO production in its history. During the fourth quarter of 2020, the Alberta government made the decision to suspend monthly limits on production under the curtailment system, effective December 2020.

Exploration and Production (E&P) production during the fourth quarter of 2020 decreased to 97,700 boe/d from 115,900 boe/d in the prior year quarter, primarily due to Terra Nova quayside preservation and natural declines in the United Kingdom.

Refinery crude throughput was 438,000 bbls/d and refinery utilization was 95% in the fourth quarter of 2020, compared to refinery crude throughput of 447,500 bbls/d and refinery utilization of 97% in the prior year quarter, with the decrease due to the impacts of reduced demand for transportation fuels as a result of the COVID-19 pandemic. Suncor leveraged its strong domestic sales network and export channels, including integration with the retail network, within its downstream business to achieve higher utilization rates which continued to outperform the Canadian refining average in the fourth quarter of 2020. Refined product sales decreased in the fourth quarter of 2020 to 508,800 bbls/d, compared to 534,600 bbls/d in the prior year quarter, as a result of the COVID-19 pandemic.

“Suncor achieved 100% utilization across our Canadian refineries in the fourth quarter, once again outperforming the Canadian refining average, which was bolstered by our strong domestic sales network and export channels within our downstream business. Combined upgrader utilization was 95%, reflecting very strong reliability across our Oil Sands assets following the completion of maintenance at the end of October, with total production further supported by debottlenecking activities that were completed at Firebag,” said Little. “We continue to sharpen our focus on operational excellence, cost reductions and executing on our near-term plans.”

The company’s total operating, selling and general expenses decreased to $2.529 billion in the fourth quarter of 2020 from $2.820 billion in the prior year quarter, primarily due to lower cash operating costs across the company’s Oil Sands assets, which included lower mine maintenance at Oil Sands operations, improved reliability at Syncrude and the reduction of costs at Fort Hills as it commenced its phased ramp up of production. The company also continued to execute on its cost reduction initiatives in the fourth quarter of 2020 and exceeded its previously announced annual operating cost reduction target for the full year.

Strategy Update

2020 was a year of unprecedented challenges that significantly impacted the energy industry. In March 2020, in response to the impacts of the COVID-19 pandemic, the company took significant steps to preserve the financial health of the company by increasing its liquidity, lowering its cash break-even costs, and setting meaningful operating cost and capital reduction targets.

For the full year, operating costs were reduced by $1.3 billion, or approximately 12%, compared to 2019 levels, through base business reductions and delivering on cost reduction initiatives including enhancements to our supply chain model. At Fort Hills, the mine is being prepared to support increasing production through 2021, consistent with previously announced guidance, with improved cost-effectiveness through the optimization of the autonomous mine fleet and other cost reduction initiatives. At Syncrude, Suncor and the joint venture owners are working together to build on the significant progress made to date towards sustainably lower Syncrude cash operating costs and higher upgrader utilization. In the fourth quarter of 2020, the Syncrude joint venture owners reached an agreement in principle for Suncor to take over as operator of the Syncrude asset by the end of 2021. Suncor, together with the other Syncrude joint venture owners, will continue to drive operating efficiencies and improve performance through integration. By capitalizing on the collective strength of our regional operations, gross synergies of $300 million annually are expected, which will further support Syncrude’s ability to achieve its cost and productivity targets.

Suncor also met its $1.9 billion capital reduction target by the end of 2020, reducing its capital expenditures to $3.8 billion which was a 33% decrease compared to the original 2020 capital guidance midpoint. Targeted capital reductions in 2020 included the deferral and cancellation of projects and the reduction in spending across various assets. At Terra Nova, the company continued to exercise capital discipline by safely preserving the floating production storage and offloading unit quayside and deferring the asset life extension (ALE) project until an economically viable path forward with a safe and reliable return to operations can be determined. Subsequent to the fourth quarter of 2020, Suncor and the Terra Nova joint venture partners, together with the Government of Newfoundland and Labrador, agreed to a non-binding Memorandum of Understanding, which provides for a financial commitment by the government, including a modified royalty regime, in support of continued operations. The ALE project is currently being evaluated with all stakeholders to determine the best option to integrate and optimize potential funding to recover the remaining resources from the Terra Nova project. During the fourth quarter of 2020, Suncor recorded a non-cash impairment charge on its share of White Rose assets and the West White Rose Project. While the asset is currently producing, there is considerable doubt regarding the future of the West White Rose Project. Discussions are ongoing with the operator and various levels of government to determine the future of the project. The Government of Newfoundland and Labrador has agreed to provide some support for the West White Rose Project in 2021.

Despite the challenges during the year, the company executed on its plans to optimize its existing assets through significant value-added projects. The interconnecting pipelines between Suncor’s Oil Sands Base and Syncrude were brought into service in the fourth quarter of 2020. Transfers began in December 2020, reflecting the enhanced integration and operational flexibility between these assets. At Firebag, work to expand the capacity of the facility by fully integrating the new incremental emulsion handling and steam infrastructure was completed, enabling the asset to produce near its new nameplate capacity of 215,000 bbls/d exiting the quarter. Through the deployment of the Autonomous Haulage System (AHS) at Fort Hills, the company has optimized its operations and expects to further enhance safety, environmental and operational performance. The interconnecting pipelines, debottlenecking at Firebag and AHS deployment will contribute, in part, to Suncor’s incremental $2 billion free funds flow target. Looking ahead, through the acceleration of Suncor’s transformation, the company continues to work to fundamentally reduce the cost structure of running the business while increasing productivity. The company anticipates that the implementation of digital technologies will facilitate the transition to the workplace of the future, bolster operational excellence and drive additional value. In addition, the company has made the decision to restart the cogeneration project at Oil Sands Base to replace the existing coke-fired boilers and the Forty Mile Wind Power Project, both of which are expected to contribute to the company’s environmental goals and incremental free funds flow target.

Suncor also continues to invest in midstream opportunities which expand the company’s market reach and strengthen the company’s sales channels, including the expansion of its Burrard product terminal, increased marine vessel activity and additional pipeline arrangements which provide feedstock optionality to our refineries. These actions have enabled the company to sustain high refinery utilization and crude production rates throughout 2020, despite demand weakness due to the COVID-19 pandemic. Subsequent to the fourth quarter of 2020, the nameplate capacity of the company’s Edmonton refinery increased from 142,000 bbls/d to 146,000 bbls/d as a result of debottlenecking activities.

“In 2020, we continued to execute on numerous strategic projects in support of structural free funds flow growth,” said Little. “Our continued focus on disciplined cost management and capital allocation means that we are moving our company towards a sustainably lower cost base while continuing to maximize the value generated from our assets. These actions have strengthened the cash generation capabilities of our company, and we have already seen the initial benefits, while laying the foundation for increasing shareholder returns.”

The company also continues to make investments in new technologies and renewable energy that lower its emissions and provide new sustainable energy sources. This includes equity investments in Enerkem Inc., a waste-to-biofuels and chemicals producer, and LanzaJet Inc., a company working to bring sustainable aviation fuel and renewable diesel to the commercial market. In the fourth quarter of 2020, Enerkem, Suncor and other partners announced construction plans for the Varennes Carbon Recycling facility, a biofuel plant in Varennes, Quebec, that is designed to convert commercial and industrial non-recyclable waste into biofuels and renewable chemicals. Suncor believes this investment complements Suncor’s existing biofuels business and renewables portfolio and further demonstrates Suncor’s active involvement in the global energy transition with low-carbon investments aligned with our current business.

Subsequent to the fourth quarter of 2020, the company reached an agreement to sell its 26.69% working interest in the Golden Eagle Area Development for US$325 million and contingent consideration up to US$50 million. The effective date of the sale is January 1, 2021 and is expected to close no later than the third quarter of 2021, subject to financing and shareholder approval of the purchaser along with other closing conditions and certain regulatory approvals.

KeyFacts Energy: Suncor Energy Canada Onshore country profile