CALGARY — Suncor Energy Inc. has provided yet another signal that strength is returning to the long-struggling refining and marketing sector, as fourth-quarter earnings in the downstream side of its business surged.
“The downstream earnings were obviously one of the highlights, and surpassed our own expectations, helped by obviously strong operations, good margins and good sales volumes,” chief executive officer Rick George told an analyst conference call Wednesday.
Overall net income during the last three months of 2010 was $1.35 billion, or 87 cents per share. The earnings handily beat the average analyst estimate of 51 cents per share, compiled by Thomson Reuters.
In the same quarter the previous year, Suncor earned $457 million, or 29 cents per share
Revenues were $9.79 billion, versus a year-ago $7.24 billion.
Suncor’s downstream segment — which includes four refineries and a chain of Petro-Canada branded fuel stations across the country — had a “blowout quarter,” said CIBC World Markets analyst Andrew Potter.
Operating earnings of $389 million, versus the $134 million Suncor booked a year earlier, surpassed Potter’s expectations.
“Refining margins appear to be even stronger to date in Q1/11 which should lead to another quarter of at least as strong downstream results,” he said.
Earlier this week another major Canadian energy name, Imperial Oil Ltd. (TSX:IMO), also reported strong downstream results. In the fourth quarter of 2009 its earnings from that segment were a meagre $52 million, but a year later bounced back to $266 million.
The solid earnings add credence to Suncor’s strategy of integrating the crude production — or upstream — side of the business with the downstream, said Suncor chief financial officer Bart Demosky on the call.
“As we move through different parts of the commodity cycle, the upstream and downstream parts of the business will share in the profits,” he said.
Suncor became the country’s biggest energy name when it merged with Petro-Canada in 2009. Since then it has sold billions in assets that don’t fit with its oilsands-focused strategy, including natural gas holdings in Canada and the United States.
This year, Suncor aims to divest a further 220 million cubic feet per day of natural gas. Last month, the firm’s natural gas and international and offshore divisions were combined into one department.
Following the Petro-Canada merger, Suncor decided to keep assets in Libya and Syria rather than sell them.
“I’m delighted to tell you that in both countries operations are normal and that we see no disruptions of the type that we’re currently seeing on TV in Egypt,” George told an analyst conference call, referring to the anti-government protests that have swelled for more than a week.
He declined to comment on diplomatic cables published on the WikiLeaks website that detailed tensions between the Libyan and Canadian governments, which reportedly posed a threat to the former Petro-Canada operations in the North African country. He added Suncor has no plans to sell the Libyan assets, which are set to produce at full-quota this month.
In December, Suncor said it inked a $1.75-billion deal with the Canadian division of France’s Total SA to work together in the oilsands.
The ownership structure at the undeveloped Fort Hills mining project north of Fort McMurray, Alta., has been shuffled around, leaving Suncor with a 40.8 per cent stake, Total with 39.2 per cent and Teck Resources Ltd. (TSX:TCK.B) with the 20 per cent.
Previously, Suncor had a 60 per cent interest in Fort Hills. Total grabbed its initial 20 per cent stake when it acquired UTS Energy Corp. last year.
In exchange, Suncor is acquiring 36.7 per cent of Total’s interest in the undeveloped Joslyn mine, which was given the regulatory go-ahead last week. Total will remain operator, with a 38.25 per cent stake, while Occidental Petroleum and Inpex hold the rest.
Total is also acquiring a 49 per cent interest in the Voyageur upgrader, which Suncor shelved when the recession hit in late 2008. Engineering and design work will be updated this year, after which point construction will ramp back up. Total will no longer build its own oilsands upgrader near Edmonton.
Suncor shares rose 32 cents to $41.93 on the Toronto Stock Exchange in afternoon trading Wednesday.