Suncor Energy posts 6.5% Increase in Production for Q1 2011; Capital Spending was primarily on Expansion of In Situ Oil Sands Operations; Production In Line with company’s target of one million boepd by 2020

Suncor Energy’s upstream production in first quarter 2011 was 601,300 boepd, up 6.5% over same period last year. Suncor’s Q1 2011 production averaged 601,300 boepd, compared to 564,600 boepd during the first quarter of 2010.  Oil sands production was 322,100 boepd, 59% increase from the first quarter of 2010. Suncor, which is expanding its oil sands production and processing operations as part of a joint venture with Total, said it had seen higher oil sands production volumes and higher realized prices in upstream operations.

In March 2011, the company completed sale of non-core North Sea assets for proceeds of £105 million (US$ 170.44 million), subject to closing adjustments. The company secured two operated exploration licenses and one non-operated exploration license in the Norway portion of the North Sea in April 2011. In addition, the company is evaluating an exploratory well in the Ballicatters field offshore East Coast Canada.

Source: Derrick Planned Exploration Wells Database


Targeting One Million Boepd by 2020

Suncor continues to move forward on its ten-year growth strategy outlined in December 2010. In support of the growth strategy, capital spending in the first quarter was primarily focused on expansion of the company's in situ oil sands operations. In April 2011, Suncor began injecting steam into a Stage 3 well pad and expects to achieve first oil by early July 2011. The expansion is expected to be fully operational in the third quarter of 2011, with production volumes ramping up over approximately 24 months thereafter toward target capacity of 62,500 boepd of bitumen.

With the closing of its strategic partnership agreements with Total E&P Canada Ltd. on March 22, 2011, Suncor expects to progress with engineering and site preparation work for the Fort Hills oil sands mining project and the Voyageur Upgrader. Under the terms of the agreements, Total assumed an interest in both Fort Hills and the Voyageur Upgrader, while Suncor assumed an interest in Total's Joslyn oil sands mining project. Suncor is targeting the completion of the Voyageur Upgrader and the Fort Hills project for 2016.

Source: Derrick E&P Transactions Database

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Macquarie Tristone advises Suncor Energy on the sale of gas weighted assets in North Peace River Arch region. Package could be worth $115-$130 million. Suncor shifting focus to oil.

Suncor Energy Inc has engaged Macquarie Tristone to seek proposals for certain assets located in the North Peace River Arch region. Suncor’s Peace River Arch sale assets are focused in two separate areas:

• Boundary Lake - Primarly gas and associated liquids from various stacked large OGIP Permian, Triassic and Cretaceous reservoirs; Vertical development upside potential
• Parkland - Dominated by the large OGIP Parkland and Doe Wabamun gas fields; Stacked uphole Triassic and Cretaceous upside potential.

Suncor strongly favours a single bid for all assets but will consider offers on the individual areas identified. The highlights of the offering are as follows:

• Total current production of approximately 3,208 BOE/d (92% Gas-weighted) primarily from Devonian Wabamun, Permian Belloy and Triassic Halfway formations
• Reserves effective 31 Mar 2011: Proved reserves - 6,479 MBOE; Reserve Life Index of 5.5 years and NPV10- $79.5 million
• Proved + Probable reserves - 8,791 MBOE, Reserve Life Index of 7.5 years and NPV10- $105 million.
• Net Undeveloped acres: 8,052  acres
• Includes operated gas plants at Boundary Lake (~80 MMcf/d capacity) and Parkland (30 MMcf/d capacity).
• Proposals are due early to mid June 2011.

A quick analysis on the value of the package-

- The NPV model reports the value of the package could be $105 million.

- The industry metrics of $35,000-$40,000/flowing boe and $200-$250/acre values the package between $115-$130 million.

Based on both the valuation methodologies, the value of the package could be in the range of $105-$130 million.

Another gas weighted package from Suncor Energy worth $175 million is up for sale. The snapshot of the deal is as follows.

Source: Derrick Petroleum E&P Transactions Database 

Suncor's 2011 outlook- Shift focus to OIL

Source: Suncor Energy- May 2011 Investor Presentation

Suncor's 2011 outlook is to divest natural gas weighted assets with production of 37,000 boe/d (worth $1.5 billion based on $40,000/ flowing boe) and increase the oil production from 50% to more than 90% after the targeted gas divestitures. Suncor joins the "Marathon Run" of shifting focus to OIL.

The following table shows the 2010 gas divestitures of Suncor Energy-

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