Suncor Cuts Syncrude Output Forecast Amid Early Turnaround

Canadian oil sands player Suncor Energy Inc. (NYSE:SU) recently provided a major update on its Syncrude project. The company has advanced the planned eight-week turnaround at its Syncrude oil sands project in North Alberta, which was originally scheduled to commence from April. The turnaround program will help fix an operational issue that is restricting the project from operating at full capacity on a particular line. The company has long been plagued by the poor operating history of the project, accounting for more than 20% of Suncor's total output. The operational challenges have resulted in unplanned outages, leading to cost escalations and production decline for the company.

Proper resolution of the issue will help in the efficient utilization of resources, reduce costs and boost production. Suncor will begin the maintenance work immediately, owing to which the Syncrude project will be running at reduced rates in the first quarter.

Suncor is the majority owner of Syncrude project with 58.74% interest. The other stakeholders in Syncrude are Imperial Oil Limited (TO:IMO) , Nexen Oil Sands Partnership and Sinopec (NYSE:SNP) , with 25%, 7.23% and 9.03% stakes, respectively.

As such, the first-quarter production at Syncrude will come lower than the initial expectations; however, production guidance for the full year remains unchanged at 150,000-165,000 barrels per day (Bbl/d). Suncor expects the first-quarter production to reduce to 140,000 Bbl/d compared with 142,100 Bbl/d in the year-ago quarter. Further, the production will also witness a sequential decline of 19.7%.

Moreover, oil sands operation volumes is also anticipated to decline to 400,000 Bbls/d in the to-be-reported quarter against 448,500 Bbls/d and 446,800 Bbls/d recorded in the first quarter of 2017 and fourth quarter of 2017, respectively. While the company’s oil sands operations volume benefited from Firebag and MacKay plants in the last quarter, weather-related outages associated with base plant operations in January will adversely affect first-quarter production.

Suncor’s Exploration and Production segment is estimated to produce 120,000 Boe/d, higher than 115,200 Boe/d recorded in the prior quarter. However, the output is likely to decline from the year-ago level of 134,500 BOE/d.

Concurrently, the overall production of the company for the first quarter is expected to be come in at 685,000 barrels of oil equivalent per day (BOE/d), reflecting a decline of 5.5% and 6.9% on a year over year and sequential basis, respectively.

Zacks Rank and Key Pick

Headquartered in Calgary, Suncor is Canada’s premier integrated energy company. Its business is divided into three main segments: Oil Sands, Exploration and Production, and Refining and Marketing. Through its aggressive expense management, Suncor has been able to lower its cash costs amid the industry downturn. This has helped the company take advantage of the rebound in oil prices. Moreover, Suncor's healthy financial profile allows it to pay an attractive dividend while pursuing an aggressive share repurchase program. However, operational challenges and unplanned outages at Syncrude oil sands project have left the investors disappointed. As such, the company carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Meanwhile, one can consider another better-ranked integrated major, Statoil (OL:STL) ASA (NYSE:STO) , a Zacks Rank #1 company. Statoil surpassed earnings estimates in each of the trailing four quarters, with an average of 23.18%.

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