Suncor Energy earns $877M on increased production; doubles dividend

The Suncor Energy Centre in downtown Calgary, Wednesday, Dec. 9, 2020. THE CANADIAN PRESS IMAGES/Jeff McIntosh

Suncor Energy Inc. is doubling its dividend and restoring it to pre-pandemic levels as it continues to pay down debt and ramp up production in the wake of higher oil prices.

Shares in the Calgary-based oil producer and refiner closed up $3.78 or 13.4 per cent to $32 on Thursday. Suncor reported after markets closed on Wednesday that it earned a net profit of $877 million in its third quarter, or 59 cents per common share, compared with a net loss of $12 million or one cent per share in the third quarter of 2020.

The company says it will increase its dividend to 42 cents per share on Dec. 24, thanks to strong performance and higher-than-expected energy prices.

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“We’re just taking advantage of the high commodity price environment. We’ve made so much progress on restructuring the debt and such, our view was we needed to keep the dividends up at the same pace,” said Suncor chief executive Mark Little, on a conference call with analysts Thursday.

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Suncor said its operating earnings increased to $1.04 billion or 71 cents per common share in the third quarter, compared with an operating loss of $338 million or 22 cents per common share in the same period last year.

Suncor’s total upstream production for the quarter ended Sept. 30 was 698,600 barrels of oil equivalent per day, compared with 616,200 in the same quarter a year ago.

Suncor’s refinery business reported $947 million in funds from operations in the third quarter, compared with $594 million in the same quarter the year before.

The company said it reduced its net debt by $2 billion in the third quarter and has reduced its net debt by a total of $3.1 billion since the beginning of 2021. Little said Suncor expects to reduce net debt by a total of $5 billion by the end of the year.

Suncor’s board has also increased its current share buyback program to seven per cent of outstanding shares to be purchased by Feb. 7. Little said the company anticipates continuing the buyback program at the prior rate of about five per cent of outstanding shares after that date.

“Even with a significant increase to the dividend and continuation of the buyback program, we are planning to accelerate the pace of achieving the net debt targets,” Little said.

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“This reflects our confidence in the performance of our asset base and the strong free funds flow generation across our integrated model, taking advantage of strong commodity prices.”

During the third quarter, Suncor assumed operatorship of the Syncrude joint venture oilsands project in northern Alberta, a milestone the company says will help improve Syncrude’s operational performance by taking advantage of all the Suncor-operated assets in the region. The change is expected to generate annual gross synergies for the joint venture owners of $100 million in the first six months, with an additional $200 million through 2022-2023, Suncor said.

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Suncor also ramped up production in the third quarter at its Fort Hills oilsands mine, which is jointly owned by Suncor and minority partners Total E&P and Teck Resources Ltd. Suncor shut down one of its production trains at Fort Hills last year as oil prices collapsed during the COVID-19 pandemic, but the company said Thursday it is expects to transition to a two-train operation and full production rates by the end of the year.

In a note to clients, ATB Capital Markets analyst Patrick O’Rourke said that Suncor’s confirmation that Fort Hills will be fully online by year-end “alleviates a key investor concern.”

Raymond James analyst George Huang said in a note he believes that behind Suncor’s dividend increase is “an underappreciated structural improvement story.”

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“We believe that 3Q21 could mark a turning point for shares of Suncor which have significantly lagged the broader energy rally year-to-date,” Huang said.

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