Suncor recorded strong earnings for most of 2007 and 2008. But the general decline in equity markets and steep decline in benchmark commodity prices in the latter part of 2008 took a toll. Here is a look at the main indicators of Suncor's internal economic performance:
Production. Suncor's total upstream production averaged 264,700 barrels of oil equivalent (boe) per day in 2008, compared to 271,400 boe in 2007 and 294,800 boe in 2006. Oil sands production contributed 228,000 barrels per day (bpd) in 2008, compared to 235,600 bpd in 2007 and 260,000 bpd in 2006. Oil sands production declines were due primarily to planned and unplanned maintenance activities in Suncor's upgrading and extraction facilities.
Earnings. Suncor reported net earnings of $2.983 billion in 2007 and $2.137 billion in 2008. However, Suncor recorded a net loss of $215 million in the fourth quarter of 2008, compared to net earnings of $1.042 billion in the fourth quarter of 2007. The earnings loss was primarily due to significant decreases in benchmark commodity prices over the course of the fourth quarter of 2008.
Operating Costs. Oil sands cash operating costs in 2008 averaged $38.50 per barrel, compared to $27.80 per barrel in 2007 and $21.70 per barrel in 2006. The increases were due to a number of factors, including higher maintenance costs related to planned and unplanned shutdowns, fixed costs being spread out over lower production, increased third-party bitumen purchases and higher input costs.
Share Prices. Suncor's common shares closed at $23.72 on the Toronto Stock Exchange on December 31, 2008, a decrease of approximately 56% on a split-adjusted basis over the year before. The decline reflected the general downward trend in global equity markets and, more specifically, the decline in benchmark commodity prices for Suncor's core products. Our focus remains on building long-term shareholder value. From 2003 to 2008, Suncor's share price increased by nearly 46%.
Suncor's renewed focus on operational excellence is aimed at improving safety, reliability, productivity and environmental performance. We are starting to realize some of the benefits.
Oil sands production averaged 278,000 bpd in the first quarter of 2009, compared to 248,000 bpd in the first quarter of 2008. We are targeting average production of 300,000 bpd (+5% / -10%) for the full year.
After years of dealing with a highly inflated cost environment, we started to make progress on reducing our operating expenses. Suncor's costs to produce a barrel of oil dropped from $41.30 in the fourth quarter of 2008 to $33.70 in the first quarter of 2009. We are targeting per-barrel operating costs of between $33 and $38 in 2009, though we are working to further improve on those numbers.
The primary reasons for the reduced operating costs include:
- changes and improvements across the business, including a renewed emphasis on energy efficiency and cost-effectiveness
- improved production (so the per-barrel costs are spread over a larger number of barrels) as well as improved reliability
- lower input costs—in particular, natural gas and steel
- reducing costs by limiting unplanned maintenance
The efficiencies we build into our operations today should serve us well tomorrow as we assess when, and how, to resume our growth projects. We intend to examine each growth project on its merits and proceed only when the economics are right.
As the market recovers, we believe we'll be in a stronger position than most to take advantage. Thanks to Suncor's record of prudent management, we continue to have financial flexibility with conservative debt-to-cash flow ratios and a strong credit profile. And thanks to years of carefully planned growth, we are in an excellent position to resume expansion when the time is right.
The proposed merger of Suncor and Petro-Canada is expected to further enhance that position. Pending regulatory approval, the merger will result in a made-in-Canada energy leader with the assets, cost structure and financial flexibility to compete globally.
In addition to sharing a vision for environmental stewardship and social responsibility, the two companies present a combined portfolio that includes the largest oil sands resource position, a strong Canadian downstream brand, solid conventional exploration and production assets, and low-cost production from Canada's east coast and internationally. The proposed merger creates a company better positioned to responsibly pursue major projects and growth opportunities, and to build shareholder value.