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Canada’s biggest energy firm and the largest oil sands outfit, Suncor Energy Inc. (SU - Analyst Report) reported mixed third-quarter 2012 earnings, reflecting volume growth at Oil Sands along with better refinery margins and start-up of operations in Libya. These were, however, partially negated by steeper operating expenses and low oil price realized.

Earnings per share, excluding certain items, came in at 85 Canadian cents (85 US cents) in the third quarter, surpassing the Zacks Consensus Estimate of 75 cents. Comparing year over year, the results dropped 25.4% from C$1.14 per share earned in the prior-year quarter.

In the reported quarter, total revenue of C$9.60 billion ($9.64 billion) plunged 7.9% from the year-ago level as well as missed our expectation by 6.0%.

Quarterly operating earnings of C$1.30 billion were down from C$1.79 billion a year ago, while cash flow from operations increased marginally to C$2.74 billion from C$2.72 billion in the third quarter of 2011.

Production

Upstream production during the quarter averaged 535,300 barrels of oil equivalent per day (BOE/d), down from the third quarter of 2011 level of 546,000 BOE/d.

Excluding proportionate production share from the Syncrude joint venture, oil sands volumes were 341,300 barrels per day (Bbl/d), higher than 326,600 Bbl/d recorded in the prior-year quarter. The current quarter results were positively influenced by higher volumes from Firebag.

Production from Syncrude operations moved up 4.7% year over year to 37,600 Bbl/d in the quarter, with the restart of a coker facility.

Suncor’s Exploration and Production segment (consisting of International and Offshore and Natural Gas segments) produced 156,400 BOE/d, as against 183,500 BOE/d in the prior-year quarter. The planned maintenance works at East Coast Canada units along with the freeze of activates in Syria posed as roadblocks for the segment’s performance.

Product Sales

The company’s Refining and Marketing segment generated total refined product sales of 87,500 cubic meters per day, up slightly from the prior-year quarter result. The result was aided by refineries running at full capacity in Western North America.

Balance Sheet & Capital Expenditure

As of September 30, 2012, Suncor had cash and cash equivalents of C$5.45 billion and total long-term debt (including current portions) of C$9.73 billion. The debt-to-capitalization ratio was approximately 19.6%. Also, during the quarter, the company incurred C$1.7 billion in capital expenditure.

Guidance

For 2012, Suncor guided total production of 540,000–580,000 Boe/d, with East Coast Canada production expected in the range of 45,000–50,000 Bbl/d. International volumes are estimated to range between 85,000 Boe/d and 90,000 Boe/d, while production at North American Onshore will be in the band of 310–340 million cubic feet equivalent per day.

The company expects oil sands production of 325,000–340,000 Bbl/d and projects Syncrude production at approximately 35,000–36,000 Bbl/d.

Suncor targets capital spending of almost $6.65 billion for 2012, of which 49% will be expended towards growth projects.

Our Recommendation

Suncor currently retains a Zacks #2 Rank, which translates into a short-term Buy rating.

With significant oil sands and conventional production platform, huge long-lived oil-sands reserves and an impressive downstream portfolio, Suncor remains well poised for earnings and revenue growth in the coming days. The company also displays abundant resources, efficient operating base and strong technical know-how.

Another prominent Canadian energy firm Canadian Natural Resources (CNQ - Analyst Report) will report its third quarter results on November 8, before the opening bell.
 

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