Suncor Energy Management Discusses Q2 2012 Results - Earnings Call Transcript

Suncor Energy (SU)

Q2 2012 Earnings Call

July 25, 2012 9:30 am ET

Executives

Steve Douglas - Vice President of Investor Relations

Steven W. Williams - Chief Executive Officer, President, Chief Operating Officer and Director

Bart W. Demosky - Chief Financial Officer

Analysts

Greg M. Pardy - RBC Capital Markets, LLC, Research Division

Andrew Potter - CIBC World Markets Inc., Research Division

George Toriola - UBS Investment Bank, Research Division

David McColl - Morningstar Inc., Research Division

Paul Y. Cheng - Barclays Capital, Research Division

Paul Sankey - Deutsche Bank AG, Research Division

Eric Busslinger - Marret Asset Management, Inc.

Guy A. Baber - Simmons & Company International, Research Division

Brian C. Dutton - Crédit Suisse AG, Research Division

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Suncor Second Quarter 2012 Conference Call and Webcast. I would now like to turn the call over to Mr. Steve Douglas, Vice President, Investor Relations. Mr. Douglas, please go ahead.

Steve Douglas

Thank you, operator, and welcome to all participants for Suncor's Q2 2012 call. I'm here in Calgary, along with the controllers team and the Investor Relations team, and joining me by conference call from Fort McMurray is our CEO, Steve Williams; and our CFO, Bart Demosky.

Just before we begin, I should make a legal note. You should note that today's comments contain forward-looking information. Actual results may differ materially from expected results because of various factors and assumptions described in our second quarter earnings release and also in our AIF. Both of these are available on SEDAR, EDGAR and our website, suncor.com. Certain financial measures referred to in our comments are not prescribed by Canadian GAAP and for description of these, please see our second quarter earnings release.

With that, I will hand over to Steve Williams.

Steven W. Williams

Thanks, Steve. As everyone knows, this was my first quarter as CEO of Suncor and it was certainly an eventful 3 months. We saw crude prices drop by $25 per barrel in the quarter, and large swings in price differentials for our basket of Oil Sands crude, as the markets reacted to the volatile supply and demand dynamics in North America and a very uncertain macroeconomic global situation. Through all of that, I'm pleased to say that Suncor's integrated business model and our focus on operational excellence enabled us to produce strong results once again through the quarter. So despite crude prices dip, were on average $9 to $10 lower this quarter than in quarter 1, we actually produced very comparable operating earnings and cash flow, and that speaks to the strength of our integrated model as our 3 inland refineries took advantage of the discounted feedstock costs to generate what were exceptionals -- exceptionally profitable results.

Our overall production remained within the range of our guidance, thanks to the steady ramp-up of Firebag and increased fall-ins from the North Sea and Libya, and we were able to complete a substantial amount of the maintenance at our Oil Sands plant, but we expect will position us well for the second half of the year and some reliable production.

On the capital project front, Firebag 4 is now over 90% complete and we expect to begin steaming the formation in the fourth quarter, and that will lead to first oil very early next year. We're continuous on our other growth initiatives with a relentless focus on cost and quality rather than on schedule for the oil sands during venture projects. That's resulted in timelines extending from the original estimates. However, we are quite comfortable with taking the necessary time upfront to ensure these projects can deliver strong value for our shareholders. At this point, we're anticipating that in 2013, we'll present a development plan for each of the 3 projects to Suncor's Board of Directors for a sanctioning decision.

Finally, I would like to talk about operational excellence and what we call our journey to 0 or our continuous effort to reduce workplace injuries. Conventional industry wisdom tells us that safety performance is an excellent indicator of overall operational discipline and operations excellence. Now we do have to keep in mind that we've been on this journey for a number of years and we've already come a long way. So it gets harder to improve on past performance, but I am delighted to say that year-to-date in 2012, total injuries across the company are down by 26% versus 2011 and high-risk incidents, which are a leading indicator of safety issues, are also trending down versus last year. So all in all, another very good quarter and we're well-positioned for a strong second half to the year.

That said, it's not just business as usual here at Suncor. The most frequent question I've been asked the past few months is what's going to be different at Suncor under a new Chief Executive. Well, I'd like to take maybe just a few minutes to answer that question. So given the fact I joined Suncor over 10 years ago and I was one of the architects of our strategy, you shouldn't expect to see Suncor take a sudden left-hand turn. Our strategy is well-established, and we'll be working hard to execute it effectively. However, you can expect to see some important changes.

First of, as I said, I'm not focused on getting to 1 million barrels a day of production by 2020. That said, I have no doubt we will eventually get to that level of production and beyond. But what I am focused on is achieving strong returns for our shareholders. Growth for the sake of growth doesn't interest me too much. What interest me is profitable growth. So that leads me to my second point, a rigorous scrutiny on capital discipline. So together with the leadership team, I will examine our spending to ensure that we're laying down that capital effectively, and we're achieving our desired returns for shareholders. So we plan to spend within our means and we spend -- plan to spend efficiently and effectively.

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