Suncor Energy (SU) reported its monthly September oil sands production results this week. They indicate Q3 oil sands production averaged over 54,000 bbls/day above year ago results (+16%). In addition, Platt's reports TransCanada should complete the southern leg of Keystone-XL, a 700,000 b/d pipeline from Cushing, Oklahoma to the US Gulf Coast, by the end of October. This is bullish for SU as the Gulf Coast is home to significant heavy oil refining capacity. With all major maintenance completed for the year, and with the bullish news on Keystone-XL (it was not expected to be completed before Q1 2014), Suncor looks well positioned for a great Q4 as well.
The following table compares 2013 Q3 oil sands' production results with Q3 2012:
These numbers include upgraded sweet and sour synthetic crude oil and diesel, as well as non-upgraded bitumen sold directly to the market, from all Suncor-operated facilities. They do not include Suncor's proportionate production share from the Syncrude joint venture.
In Q3 of 2012, oil sands production (excluding Syncrude) averaged 341,300 bbls/day. The numbers above (which are company estimates), indicate Q3 2013 production averaged ~396,000 bbls/day. That's up 54,700 bbls/day over the prior year's quarter, or +16%.
2013 Maintenance Largely Completed
From the Seeking Alpha Q2 transcript, we learned from Suncor President and CEO Steve Williams that the planned maintenance has largely been completed for the year:
So with our major maintenance for the year complete in Oil Sands and R&M, we're well positioned to run reliably for the remainder of the year.
In the second quarter, SU successfully completed the largest maintenance turnaround in the company's history. This involved a complete shutdown of the unit one upgrading complex for preventative maintenance and significant plant improvement. Suncor now expects to extend runtime between major turnarounds from 4 to 5 years and will be able to run at higher rates of throughput. The company also completed major planned maintenance at Firebag in the Steepbank mine and at the Edmonton refinery.
Buffett Must Be Happy
Relatively new Suncor shareholder Warren Buffett was likely very pleased with the production report. Berkshire Hathaway (BRK.A) has spent over a half billion dollars for 17,769,457 shares of Suncor, owns 100% of Burlington Northern (a railroad which transports large amounts of crude), and has a large stake in refiner Phillips 66 (PSX). Berkshire literally makes money coming and going - from the bitumen in the ground to the gasoline in consumers' tanks.
Keystone-XL A Pleasant Surprise
As Platt's reported, the early completion of Keystone-XL was an event that the market was not expecting. Addison Armstrong, an analyst at Tradition Energy, said this was is evident by a quick reaction in the Brent/WTI spread, which moved $1 in 10 minutes.
Stocks at Cushing continued to drop, falling 59,000 barrels to 32.79 million barrels last week, according to US Energy Information Administration data reported on Wednesday. This was the 13th consecutive weekly drawdown in Cushing stocks.
This is bullish not only for Suncor, but for Bakken producers too. It could be one reason stocks like Whiting Petroleum (WLL) and Kodiak Oil & Gas (KOG) rallied so strongly this week despite a generally weak market. WLL & KOG went on an absolute tear - both were up over 7%.
Summary & Conclusion
Suncor continues to perform in-line with company guidance and is on track for a great Q3 and Q4. The early complete of the southern leg of Keystone-WL was a pleasant and bullish surprise. I reiterate my $40 year end price target and consider the stock a BUY.
Additional disclosure: I am an engineer, not a CFA. The information and data presented in this article was obtained from company documents and/or sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Please do your own research and contact a qualified investment advisor. I am not responsible for investment decisions you make. Thanks for reading and good luck!