Q3 Refinery FCF should be $1.23 billion CAD more Q3/Q2Do you have Suncor earning
more per share in Q3 vs Q2 on your bingo card?
Suncor will earn more Q3 compared to Q2 because of higher crack spreads and lower share float in spite of lower oil prices.
Suncor will make up the lost revenues from lower oil prices (~$14 USD / barrel less so far Q3 compared to Q2) from the greatly increased revenues from refinery operations.
Suncor has significant refinery operations running 4 different plants in Canada and the USA where they convert oil into diesel and gasoline. Q3 should average 460,000 barrels per day throughput due to no scheduled maintenance. Suncor states the following:
(1) 2-1-1 crack spreads are indicators of the refining margin generated by converting two barrels of WTI into one barrel of gasoline and one barrel of diesel. The crack spreads presented here generally approximate the regions into which the company sells refined products through retail and wholesale channels.
Suncor always references the following 2-1-1 regional diesel cracks which realized an average of $41.88 USD Q2:
- New York Harbor 2-1-1 crack
- Chicago 2-1-1 crack
- Portland 2-1-1 crack
- Gulf Coast 2-1-1 crack
I could find quotes for two of the above cracks: NY Harbour = $62.11 (USD) and Gulf Coast $70.69 USD. Average those two together and you get $66.40 or $24.52 USD or
$32.21 CAD over the average price of Q2. I can't find a chart for these cracks though I have looked time to time and they have been well over $55 for most of the quarter.
Suncor produces ~750,000 barrels per day oil = 750,000 x $14 (price dif Q2/Q3) x 92 (days in quarter) x 1.31 (exchange rate) =
~$ 1.266 billion CAD less FCF for oil production Q3/Q2. HOWEVER: Suncor cracks 460,000 barrels per day oil = 460,000 x ~$25 (CAD) (conservative assumption difference in crack spreads Q3/Q2) x 1.16 (increased throughput Q3/Q2 due to maintenance being over) =
~$1,227 billion more in FCF from higher crack spreads. As the algos yank the price of Suncor up and down with every $ increase/decrease in WTI the way higher crack spreads in Q3 are going unnoticed by investors.
Ref:
https://sustainability-prd-cdn.suncor.com/-/media/project/suncor/files/investor-centre/quarterly-reports-2022/2022-q2-suncor-energy-quarterly-report-en.pdf?modified=20220902095542&_ga=2.174882850.106690227.1662126070-1927919609.1647443836&_gac=1.159325384.1662126123.Cj0KCQjw08aYBhDlARIsAA_gb0dvyGOOi70n8gLpGrPvPrSOOiLet8mKmoN98g3ZsPeVisO7yZAJj3gaAu2dEALw_wcB https://www.cmegroup.com/markets/energy/refined-products/ny-harbor-heating-oil-crack-spread-calendar-swap.html https://www.cmegroup.com/markets/energy/refined-products/gulf-coast-ulsd-crack-spread-swap.html