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Suncor Energy: Pricing Differential Drags On Results

Feb. 11, 2019 11:19 AM ETSuncor Energy Inc. (SU), SU:CA4 Comments


  • The differential between WCS and WTI crude oil was at its highest levels ever during the fourth quarter of 2018.
  • This had an impact on all of Suncor's financial figures.
  • The company's refinery operation managed to offset some of the effects of this, but it does not have enough refining capacity to offset it all.
  • Despite the poor financial performance, the company hiked the dividend and buyback programs, continuing its streak.
  • Since the differential is starting to narrow now, we may see some positive impacts going forward.
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On Wednesday, February 6, 2019, Canadian oil sands giant Suncor Energy (NYSE:SU) announced its fourth-quarter 2018 earnings results. At first glance, these results look rather disappointing as the company failed to meet the expectations of analysts on both the top and bottom lines. At least some of this was expected due to the widening of the differential between Canadian and WTI crude oil, although Suncor's refinery operation does allow the company to offset a large portion of the lost revenue due to this. Suncor also suffered from a few one-time events that had a negative impact on the company's earnings. Overall, I will admit to being somewhat disappointed as I was reviewing these results.

As my long-time readers are no doubt aware, it is my usual practice to share the highlights from a company's earnings report before delving into an analysis of its results. This is because these highlights provide background for the remainder of the article as well as serve as a framework for the resultant analysis. Therefore, here are the highlights from Suncor Energy's fourth-quarter 2018 earnings results:

  • Suncor Energy reported total operating revenues of C$8.561 billion in the fourth quarter of 2018. This represents a 4.88% decrease over the C$9.000 billion that the company had in the same quarter of last year.
  • Operating earnings were C$580 million in the quarter. This compares very unfavorably to the C$1.310 billion in the prior year quarter.
  • Suncor reported an average production of 831,000 barrels of oil equivalents per day during the fourth quarter. This compares to 736,400 boe/day in the year-ago quarter.
  • Total funds from operations were C$2.007 billion during the most recent quarter. This compares quite unfavorably to the C$3.016 billion that the company had a year ago.
  • Net loss was C$280 million in the fourth quarter of 2018. This

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