Suncor Issues Operations Update

Canada’s biggest energy firm and the largest oil sands outfit, Suncor Energy Inc. ( SU - Analyst Report ) recently issued updates related to its activities at the Firebag facility, Oil Sands Base plant and the Terra Nova Floating, Production, Storage and Offloading (FPSO) facility.

At Firebag 4 facility, Suncor produced its first oil throughput following its secure commissioning during the third quarter of 2012. In the month of November, this facility produced around 130,000 barrels per day (bbls/d).

Oil sands production at Oil Sands Base plant was expected to be lower (312,000 bbls/d) due to unplanned maintenance in early November. But actual production was more than 380,000 bbls/d during the month owing to the timely resolution of maintenance issues. Suncor expects the facility to utilize its full capacity in December and guided that production will be towards the lower limit of its guided range of 325,000–340,000 bbls/d for 2012.

The FPSO facility is in last stage of commissioning and will commence operations after scheduled maintenance work. Suncor expects the FPSO facility to utilize its full production capacity by December end. Its full year production will be in the range of 540,000 to 580,000 barrels of oil equivalent per day.

Suncor has significant oil sands and conventional production platform, huge long-lived oil-sands reserves and an impressive downstream portfolio. The company’s asset base includes substantial conventional reserves and production at offshore Eastern Canada and in the North Sea, which is capable of generating strong margins and free cash flows.

However, Suncor’s deep oil sands technology, though proven, is still vulnerable to potential implementation delays, in our view. In particular, there are risks related to growth and other capital projects that depend wholly or partly on new technologies. The success of these projects remains uncertain.

We are maintaining a long-term Neutral recommendation on the stock. Suncor currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Canadian Natural Resources ( CNQ - Analyst Report ) is another Zacks #3 Rank stock in the same industry.