Suncor Energy : Read the Transcript (PDF, 13 pp., 145KB)

Suncor Energy Fourth

Quarter 2021 Financial

Results Call

Thursday, 03 February 2022

Operator: Good day and thank you for standing by. Welcome to the Suncor Energy fourth quarter 2021 results conference call. [Operator instructions]. I would now like to hand the conference over to your speaker today, Mr. Trevor Bell, vice president of investor relations.

Mr. Bell, the floor is yours.

Introduction

Trevor Bell

Vice President of Investor Relations, Suncor Energy Inc.

Thank you, operator, and good morning. Welcome to Suncor's fourth quarter earnings call. With me this morning are Mark Little, President and Chief Executive Officer; and Alister Cowan, Chief Financial Officer. Please note that today's comments contain forward-looking information. The actual results may differ materially from the expected results because of various risk factors and assumptions that are described in our fourth quarter earnings release, as well as in our current Annual Information Form. Both of those are available at SEDAR, EDGAR and our website, suncor.com.

Certain financial measures referred to in these comments are not prescribed by Canadian GAAP. For a description of these financial measures, please see our fourth quarter earnings release. Following formal remarks, we'll open up the call to questions.

Now, I'll hand it over to Mark for some opening remarks.

Opening Remarks

Mark Little

President & Chief Executive Officer, Suncor Energy Inc.

Great - thanks Trevor, and good morning, thank you for joining us.

I wanted to begin by talking about the incidents that we outlined in our recent press release. On many occasions, inside the company and externally, I've talked about my personal commitment to safety above all else and our drive to operational excellence. I know that many are questioning our focus on this given the recent fatality and operational challenges. These outcomes are unacceptable, and we know that we must do better!

I and the Suncor leadership team are deeply committed to engaging our workforce, so everyone goes home safely every single day and improving the operating performance of our company. I have a comprehensive plan endorsed by our board and we're executing this plan to address these concerns.

Despite these challenges, we had several accomplishments in the quarter:

• We delivered the best quarter of adjusted funds from operations of 3.1 billion dollars. On a per share basis this is $2.17 per share and exceeds our previous quarterly per share record which was set in Q1 of 2014 by 11%.
• We upgraded a combined 515,000 barrels per day of synthetic crude oil which marks our third best quarterly result due to 99 and 90 percent utilization rates at Base Plant and Syncrude respectively.
• We produced 151,000 barrels per day of bitumen from our In Situ operations and Fort Hills which resumed two train operations in mid-December.
• Our E&P production of 77,000 barrels a day reflects the Golden Eagle disposition, and
• In the Downstream, we achieved nearly 800 million dollars of adjusted funds from operations with 96% refinery utilization. And once again, our Canadian refineries outperformed the Canadian refinery average utilizations.

In terms of full year results, we continued to strengthen the company by reducing our net debt by nearly 4 billion dollars. We returned nearly 4 billion dollars of cash through the doubling our dividend and share buybacks - and that's 40% of our adjusted funds from operations within the year. Based on our average 2021 average market cap, that's a 10% cash return to our shareholders.

Looking at our 2021 full year performance, Suncor generated adjusted funds from operations of 10.3 billion dollars. Our regional oil sands assets contributed record annual funds from operations of 6.9 billion, despite completing the largest maintenance program in our history.

These results reflect accretive investments including increasing the utilization of our Suncor-Syncrude interconnecting pipeline, higher volumes from Firebag debottlenecks, improved margin capture through our trading logistic capabilities and continued cash savings from reclamation using our PASS technology.

I'll now pass it to Alister to go through the quarterly financial results.

Financial Highlights

Alister Cowan

Chief Financial Officer, Suncor Energy Inc.

Thanks, Mark.

As you noted, our adjusted funds from operations per share of $2.17 is a 11% improvement compared to our previous quarterly record. This reflects the value of our buyback program as we lowered our share count by approximately 6% during the year, acquiring and cancelling 84 million common shares at an average price of $27.45 Cdn per share.

Let me walk through our results:

Oil Sands generated Q4 adjusted funds from operations of 2.2 billion dollars with an average realization of $87 Cdn per barrel. On an annual basis:

• Oil Sands cash operating cost of $25.90 per barrel for the full year ended up below the guided range while absorbing a $1 per Giga Joule AECO increase in natural gas prices versus our original guidance assumptions, this equates to approximately $1 per barrel on cash cost basis.
• Fort Hills 2021 cash operating cost of $41.35 per barrel reflects a one-train operation for almost the entire year. As we look to 2022, we are targeting cash operating costs of $25 per barrel at the mid-point with the two-train operation.
• Lastly, Syncrude's annual cash operating costs of $35.20 per barrel was slightly above the guided range impacted by the December operational incidents. The impact of higher natural gas prices was approximately 50 cents per barrel on a cash cost basis.

E&P delivered 425 million dollars of adjusted funds from operations in the quarter reflecting an average price realization of $102 Cdn per barrel.

Moving to our Downstream results, we generated 765 million dollars of adjusted funds from operations with a 96% refinery utilization. Although diesel demand is back to normal rates, gasoline demand was lower by 10% versus Q4 2019 due to renewed Covid restrictions in Canada, particularly in Ontario and Quebec. Early in Q4 we were able to use our upgraded Burrard terminal to export product and maintain refinery throughput given this temporary dip in domestic demand, but as you will appreciate these are lower margin barrels than our domestic retail channels. I should note the advantage our logistics infrastructure and marketing teams provided during the severe BC flooding in Q4. We were able to keep our customers supplied across BC despite significant challenges that cut off all transportation links to Vancouver from the rest of Canada. Our Burrard terminal became an import terminal for refined product into Vancouver keeping it supplied.

Our 2021 full year capital spend of 4.4 billion dollars was within the provided guidance range, but higher than our previously communicated midpoint of 4.2 billion dollars. This was due to increased spend at Syncrude and Firebag late into the year as a result of the operational issues, the earlier receipt of materials for 2022 turnarounds as we managed supply chain, and accelerated progress payments on the Cogen as milestones were achieved slightly faster than expected.

In terms of shareholder returns, during the quarter - we returned 1.2 billion dollars to shareholders in the form of dividends and buybacks, and at the same time reduced our net debt by roughly 500 million dollars.

On a full year basis, we returned nearly 4 billion dollars to shareholders and repaid nearly 4 billion dollars of debt. As a result, we reduced the number of outstanding shares back to 2015 levels and returned our dividend and net debt balance back to 2019 levels.

As it relates to our guidance, our only change is to the business environment for higher commodity prices, which of course increases our cash taxes and royalty ranges slightly. We've also updated maintenance schedules for the year within Investor Relations deck.

Subsequent to the fourth quarter, Suncor's Board of Directors approved a renewal of the company's share repurchase program for up to 5% of Suncor's issued and outstanding common shares as at January 31st, 2022. This program will begin when the 2021 buyback program expires on February 7th, 2022.

I'll now pass it back to Mark for closing remarks.

Mark Little

President & Chief Executive Officer, Suncor Energy Inc.

Thanks, Alister.

Consistent with mines in the region, we too had some challenges in January at our mining operations, which resulted in a slower start to the year than we expected. Q1 production will reflect this softness, including a reduction in shipping rates at Syncrude, as we're accelerating some major maintenance on our hydrotreating and hydrogen assets into the quarter to maximize our full year production.

As a result, we're expecting Q1 2022 production to be consistent with Q4 2021. However, our 2022 production guidance remains intact.

As I currently look at each asset, its nameplate capacity:

• Our Base Plant upgrader carried its fourth quarter 99% utilization momentum into January,
• In Situ assets are operating over 95%,
• Syncrude is operating over at 90%, and
• We're working to stabilize Fort Hills and expect to achieve our annual production guidance for this asset.

On the cost side, we will continue to drive down the cost structure of our business by increasing our workforce productivity by our targeted 10% through implementation of enterprise-wide systems and processes, continued digitization of our operations, and capturing Syncrude synergies as we've previously communicated. This is expected to result in a year-over-year controllable cost reduction across the company.

Our capital program of 4.7 billion dollars includes investments in highly accretive economic growth at Terra Nova - slated to come online by the end of this year, In Situ well pads, 40-Mile wind farm and the Cogen at Base plant.