Suncor, Canadian Oil Sands, Petro-Canada: Earnings Will Take Hit From Costs in Canadian Currency

Lower refining profits and the hot Canadian dollar will temper gains from soaring prices as Canadian oilsands companies roll out third quarter results in the coming days, said Raymond James.

The price of benchmark West Texas Intermediate rose 17% in the quarter from US$71.09 to US$81.66 but better yet for producers of synthetic crude oil, such as Canadian Oil Sands Trust (COSWF.PK) and Suncor Energy Inc. (SU), was the fact the price for light sweet synthetic oil sold, on average last quarter, 65 cents higher than WTI, the investment dealer noted.

Canadian Oil Sands Trust also benefited from record production levels at the company’s core asset, its share of the Syncrude Canada Ltd. oilsands joint-venture, while production at Suncor’s oilsands project was curtailed slightly as it tied in its latest expansion in July.

Raymond James estimates cash flow per share for Canadian Oil Sands Trust will come in at 98 cents, up from 55 cents per unit in the second quarter, with recent weak natural gas prices — a key piece of the operating cost equation for oilsands companies — giving the trust’s cash flow an extra boost.

For Suncor, Raymond James estimates cash flow per share of C$1.71 in the quarter, marking a 9.5% decline from the second quarter.

Petro-Canada (PCZ), which Raymond James also covers and offers a cash flow estimate for, will churn out cash flow per share of C$2.29, down from $2.74 in the previous quarter.

Some of the upside in oil price appreciation will be offset by the climbing loonie, as oil is a U.S.-denominated commodity and oilsands players cover operating costs in Canadian dollars.

Refining margins, known as crack spreads, fell 50% to about US$12 a barrel after cruising along last year and early this year at all-time highs, which will impact refining division profits for the likes of integrated players such as Petro-Canada, Suncor, and smaller oilsands company Connacher Oil and Gas Ltd. (CLL/TSX).

Comments

[Fred Mitchel]

All undoubtedly very true, but what the article misses is the fact that as the loonie has risen to par value with the U.S. $, the dividend payouts have also increased for Americans holding these CanRoys. The net effect is likely to be no effect on dividend payouts for Americans; and an average of 12% AFTER Canadian taxes is still pretty good. Also, long term, do you really see oil prices going down?
These CanRoys hold multi-year reserves, and as peak oil nears, these operations are going to look increasingly good: no hurricanes, no terrorists (other than the Canadian government), long reserves. Oh, and did I mention good dividends? Paid monthly, for most of them!