Suncor’s business segment earnings trend
Suncor Energy’s (SU) focus on cost reduction and higher reliability has shifted the segmental dynamics within the company. Suncor’s Oil Sands segment, which had been posting operating losses until 2Q16, turned profitable in 3Q16. This was on account of the higher production volumes coupled with the reduction in operating costs year-over-year.
Comparatively, SU peer ExxonMobil’s (XOM) upstream earnings fell 54% YoY to $620 million in 3Q16. Total’s (TOT) net adjusted operating earnings from the upstream segment have fallen 21% from 3Q15 to $0.88 billion in 3Q16. If you are looking for exposure to integrated energy sector stocks, you might consider the iShares Global Energy ETF (IXC). This ETF has ~55% exposure to the industry.
On the other hand, SU’s Refining and Marketing segment’s operating earnings fell 30% from 3Q15 to 436 million Canadian dollars in 3Q16. The company’s overall operating earnings fell from 410 million Canadian dollars in 3Q15 to 346 million Canadian dollars in 3Q16. However, SU’s Oil Sands and Refining segments have notably resisted this decline.
Suncor’s fourth quarter segmental outlook
Suncor is likely to witness a rise in its upstream earnings in 4Q16 over 4Q15. WTI (West Texas Intermediate) and Brent crude oil prices, which averaged $42 per barrel and $45 per barrel, respectively, in 4Q15, rose to $49 per barrel and $51 per barrel, respectively, in 4Q16. Similarly, Henry Hub natural gas prices have risen from $2.2 per MMBtu (million British thermal units) in 4Q15 to $3.2 per MMBtu in 4Q16. Usually, everything else being equal, a rise in crude oil and natural gas prices suggests a likely rise in the company’s upstream earnings in 4Q16.
However, earnings from its downstream segment are likely to be uncertain, as cracks have put up mixed performances in 4Q16 compared to 4Q15. A case in point is US regional cracks, which have put up divergent performances. The cracks have widened in some areas and contracted in others. The US Gulf Coast WTI 3-2-1, the benchmark crack spread, widened year-over-year during the quarter.
Crude oil prices have risen quarter-over-quarter in 4Q16, but crack indicators have put up mixed performances.