Suncor Energy plans 5% oil production increase in 2020

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Suncor Energy Inc. [SU-TSX, NYSE] has released its 2020 corporate guidance, saying it anticipates higher oil production next year. Upstream production is expected to be between 800,000 to 840,000 barrels of oil equivalent per day, marking an approximately 5.0% production increase in comparison to 2019 midpoint guidance.

Suncor is one of Canada’s largest integrated energy companies. It operates in western Canada, east coast Canada, the U.S. and the North Sea.

The impact of the government of Alberta’s mandatory production curtailment is factored into Suncor’s 2020 guidance, which incorporates the utilization of crude-by-rail special production allowances. Although there continues to be considerable uncertainty over the impact and duration of the curtailment, the lower end of Suncor’s production guidance assumes that curtailment remains in place at current levels for the full 2020 calendar year. The upper end reflects an un-curtailed environment.

Suncor said its Fort Hills and Syncrude operations remain adversely impacted due to the continued, disproportionate effect of curtailment, as it applied on a 2018 production basis, when neither asset was operating at nameplate capacity.

The mandatory cuts sharply reduced a price discount on Canadian versus U.S. oil, boosting revenue for many producers but affecting profits for integrated companies such as Suncor, which benefited from low cost oil to run through its refineries.

Meanwhile, Suncor said its 2020 corporate guidance focuses on driving its $2 billion of incremental free funds flow target by 2023 and achieving its 2030 sustainability targets. It also reflects the company’s recent 800-megawatt cogeneration investment announcement.

The 2020 capital program is expected to be between $5.4 billion and $6.0 billion with flat investment in oil related projects year over year. Capital for previously sanctioned E&P (exploration and production) step-out developments will increase by approximately $100 million over $2019 to $1.1 billion, and includes the Terra Nova asset life extension.

The anticipated incremental capital spend in 2020 includes $300 million for a newly-sanctioned cogeneration facility, $150 million for additional investment in digital technology initiatives and $50 million in connection with the completion of the Syncrude bi-directional pipelines.

Suncor has sanctioned the Forty Mile wind power project in Southern Alberta. This 200-megawatt renewable power project has an estimated total capital spend of $300 million, with 25% of the capital spent in 2019 and the remainder spent over the next two years.

This unique investment approach in renewable energy is expected to generate double-digit, sustainable economic returns through power generation and retaining the generated carbon credits for utilization in the core business. This project is part of Suncor’s sustainable strategy, making meaningful progress toward the greenhouse gas intensity reduction target of 30% by 2030.

Suncor said the capital program is approximately 50% allocated to planned asset sustainment and maintenance activities to ensure continued safe, reliable and efficient operations. The remaining 2020 capital program has a continued focus on low-capital intensity, value creating projects, including the co-generation facility; continued implementation of autonomous haul trucks; completion of the Syncrude bi-directional pipelines; investment in renewable wind power development; and digital technology adoption.

On Tuesday, Suncor shares eased 0.36% or 15 cents to $41.22 on volume of 3.3 million. The shares are trading in a 52-week range of $35.53 and $46.50.

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