Alberta oil giant Suncor is making a healthy recovery from the crash in oil prices in 2015 and the Fort McMurray wildfires in the spring of 2016. Suncor’s most recent quarterly financial statement revealed an over 200% increase in net profits compared to the previous year. The company suffered a $376 million loss in the third quarter of 2015 while in 2016 the company turned around with a $392 million profit.
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A dramatic drop in oil prices in 2015 hit Suncor hard with a net annual loss of nearly two billion dollars, as revealed by its 2015 annual financial statement. In years prior to the crash the company was earning profits in the multi-billions. To add fuel to flame, wildfires in the spring of 2016 caused the company to temporarily suspend oil sands operations, further exacerbating the company’s losses. However, Suncor returned to operations a few months after the fire, and profits were turned around for the third quarter.
“Despite what happened last year their balance sheet still looked very healthy,” said Emily Gray, chartered professional accountant and Sprott Business School instructor at Carleton University. Gray described the company’s finances as “impressive” and said that the balance sheet revealed strong operational cash flows or earnings from regular activities–a sign that the company is in good shape.
The company’s financial strength was demonstrated as Suncor invested a healthy sum in exploration and production–a potentially risky area of investment for an oil company, according to Gray. Gray said that investments in risky developments can indicate a company’s confidence. “Our performance demonstrates the strength of our core assets and our ability to deliver strong cash flow, even in a lower price environment,” stated Suncor CEO Steve Williams in the Q3 financial statement.
Suncor’s financial statement attributed its profits to operating earnings. The operating cost dropped by 18% from last year down to $22.50 per barrel. According to Williams, “Operational excellence is a top priority and has been consistently demonstrated in continuous improvements to reliability and ongoing reductions in both capital and operating costs.” According to the Q3 financial statement, operating costs are likely to continue decreasing.
A deferred tax recovery from the U.K. also contributed to this quarter’s earnings. However, these multi-million dollar earnings were largely cancelled out by losses in foreign currency exchanges.
The 2015 drop in oil prices may not have been as detrimental for Suncor as other companies in the same industry. Suncor was able to acquire Canadian Oil Sands for $4.2 billion in early 2016 and later increased its stake in Syncrude. Both of these investments are now beginning to pay off. Canadian Oil Sands is now Suncor’s largest contributor in production, earning the company a significant portion of the total profits this financial term.
Suncor spent $937 million on increasing its stake to a majority 54% in Syncrude, just months after acquiring Canadian Oil Sands. For this financial term, Syncrude’s oil production increased fivefold while operating costs were cut by a third.
“Discipline and prudence are the hallmarks of our financial strategy” said Williams during a speech regarding the Q3 financial statement, “it also allows us to continue to return cash to shareholders through a competitive dividend”.
Suncor representatives were contacted but did not give original comment.