DBRS... and UPDATE ON 3-2-1 crack spreadsIn my view,DBRS is using very conservative figures.
As of this writting ,the 3-2-1 crack spread in CDN$ are $49.56 a far cry from the historical and crazy $76.75 of last june 2nd but they are still more than 2 times the average of mid to high teen achived since 2007.
since the beginning of 2023, the 3-2-1 mostly been over $40.
How long will these spread stay at these elevated level is anybody's guess.
What i can say, is that they have been elevated since Feb. 2022.
Any major hurricane in the Refinning Texas area would probably propel these already very high margins.
July 19, 2023 DBRS Limited (DBRS Morningstar) confirms the Issuer Rating of Suncor Energy Inc. (Suncor or the Company) and the rating of the Company’s Debentures and Medium-Term Notes at A (low), Stable trends. Furthermore, the Company’s Commercial Paper rating was confirmed at R-1 (low) with a Stable trend.
Suncor's ratings are underpinned by the Company’s (1) size with production of 755,000 barrels of oil equivalent per day (boe/d) projected (based on the midpoint of Company guidance) in 2023 and refinery capacity of 466,000 barrels per day (bbls/d), (2) highly integrated upstream and downstream operations that enable the Company to capture margin throughout the entire value chain, (3) long-life, low-decline oil sands assets, (4) capital flexibility and operational efficiency, and (5) positive liquidity profile. Suncor's ratings are tempered by its (1) exposure to lower-margin nonupgraded bitumen production, (2) concentration of producing assets in Western Canada that are 100% weighted to crude oil, (3) operational reliability and workplace safety performance issues at its oil sands operations, and (4) mounting environmental regulations and cost pressures.
The Company's credit metrics strengthened materially in 2022 as crude oil prices and refinery margins rose to exceptionally high levels. Suncor produced a free cash flow surplus (FCF; cash flow after capital expenditures (capex) and dividends) before working capital changes in 2022 of $10.38 billion ($8.0 billion when accounting for working capital changes). The Company employed the FCF surplus largely to reduce total indebtedness by 15% to $15.62 billion at YE2022 and repurchase shares. In 2022, the Company's key lease-adjusted debt-to-cash flow ratio improved to 0.86 times (x), and the lease-adjusted EBIT interest coverage ratio increased to 17.3x, the strongest in several years.
Based on DBRS Morningstar's average West Texas Intermediate oil price forecast of USD 65/barrel (bbl) in 2023 and USD 60/bbl in 2024 and 2025, a more normal level of refining margins and Company plans to maintain capital discipline ($5.60 billion capex budgeted for 2023 based on the midpoint of guidance), FCF surpluses are anticipated to be close to $2 billion or less per year through the period. Suncor plans to allocate up to 50% of FCF surpluses to repay debt until net debt reaches $12 billion and then 25% until net debt reaches $9 billion. DBRS Morningstar expects Suncor's key credit metrics to continue to support an A (low) rating.
If the Company can consistently achieve, historically and looking forward, a key lease-adjusted debt-to-cash flow ratio at 1.0x or below, DBRS Morningstar may consider a positive rating action. On the other hand, should oil prices fall to USD 45/bbl or less, and the Company’s key credit metrics weaken materially for an extended period of time, DBRS Morningstar may take a negative rating action.