Recent Incidents And Production Update-CIBC Investor Edge Suncor provided an update on the recent safety incident at its Base Plant Mine and on the impact to production at Syncrude and Firebag from the cold temperatures in December. Production impacts from the cold weather drove 2021 production to ~732 MBoe/d (~1% below guidance of 740 MBoe/d), in line with our expectations of 734 MBoe/d and modestly below consensus at 738 MBoe/d. The company has resolved the immediate operational issues and the assets have returned to normal production levels. We continue to expect Q1/22 production to be ~813 MBoe/d.
Key Takeaways
Production Update: Cold weather drove downtime at Syncrude and Firebag, bringing utilization rates in Q4/21 of 93% and 90%, respectively. Average production in Q4/21 and 2021 was negatively impacted by ~35 MBoe/d and ~8 MBoe/d, respectively. This suggests corporate
production of ~741 MBoe/d and 732 MBoe/d vs. our estimates of 754 MBoe/d and 734 MBoe/d, respectively (and consensus at 760 MBoe/d and 738 MBoe/d). As of January 2022, current production levels at Syncrude and Firebag were consistent with 2022 annual production guidance.
Syncrude Update: Chain failures led to downtime at the two Mildred Lake Mine crushers. Suncor has now made adjustments to the design and potential quality flaws related to the equipment, but returning the asset to production took longer than expected given the colder weather.
As a result, the repair, which was initially estimated to take one week, resulted in three weeks of downtime. The company has repaired the first crusher by installing the previous version of chains and the second crusher has been repaired and is scheduled for similar chain
replacement in mid-February. As a result, both crushers are operational.
Firebag Update: Cold weather affected the runtime of two critical furnaces, resulting in the shutdown of ~170 wells. The company has implemented further mitigation measures while an investigation continues to ensure the existing winterization program is sufficient to withstand extended periods of cold weather. The facility began to ramp up production on December 22 and reached ~200 MBbl/d by January 1, 2022.
Valuation: Suncor trades at a P/RNAV ratio of 71%, a 2022E EV/DACF of 4.7x and a 2022E FCF yield of 16% vs. the large-cap group at 81%, 4.5x and 19%, respectively.
Outperformer
SU-TSX, Sector: Energy
Current Price (1/17/22): C$36.11
Price Target (12-18 mos.): C$48.00
Dennis Fong, P.Eng. Chris Lee
Cheryl Wu, CFA
All figures in Canadian dollars unless otherwise stated.
Recent Incidents And Production Update - January 18, 2022
Price Target Calculation
Our 12- to 18-month price target of $48.00 is based on 1.0x our RNAV and maps to a 2022E
EV/DACF multiple of 5.9x and FCF yield of 12% on our base price deck, including current net
debt of $16.7B, including leases.