Yahoo Finance Berkshire Hathaway ups stake in Suncor Energy
Overview: Berkshire Hathaway's second quarter 13F filing (Part 4 of 7)
Berkshire Hathaway and Suncor Energy
Warren Buffett’s Berkshire Hathaway initiated new positions in Charter Communication (CHTR) and Now Inc. (DNOW). Notable positions that increased during the quarter were Suncor Energy Inc. (SU) and Verizon Communications (VZ). The fund lowered its position significantly in Graham Holdings (or GHC) and slightly in ConocoPhillips (COP).
Berkshire Hathaway upped its position in Suncor Energy (SU) by 27% to 16,458,330 shares. The position now accounts for 0.65% of the fund’s 2Q14 portfolio—up from 0.43% in 1Q14.
Suncor Energy is an integrated energy company. It’s headquartered in Alberta, Canada. Suncor is focused on developing one of the world’s largest petroleum resource basins—Canada’s Athabasca oil sands. The Oil Sands segment includes:
Oil Sands base operations include the Millennium and North Steepbank mining and extraction operations, integrated upgrading facilities known as Upgrader 1 and Upgrader 2, and the associated infrastructure for these assets—including utilities, energy, and reclamation facilities like Suncor’s tailings management assets.
In situ operations include oil sands bitumen production from the Firebag and MacKay River and supporting infrastructure like central processing facilities, cogeneration units, and hot bitumen infrastructure. It includes an insulated pipeline, diluent import capabilities, a cooling and blending facility, and related storage assets. In situ production is either upgraded by Oil Sands base or blended with diluent and marketed directly to customers.
The Oil Sands segment also includes the company’s interests in significant growth projects. The projects include its 40.8% interest in the Fort Hills mining project—where Suncor is the operator. It also includes Suncor’s 36.8% interest in the Joslyn North mining project.
The company holds a 12% interest in the Syncrude oil sands mining and upgrading operation. Suncor’s Exploration and Production segment consists of offshore operations off the east coast of Canada and in the North Sea. It also has onshore operations in North America, Libya, and Syria. Suncor conducts energy trading activities focused on marketing and trading crude oil, natural gas, and byproducts.
Profit drops 69%
Suncor Energy’s shares fell after 2Q14 profit came below estimates. Its net earnings were 211 million Canadian dollars—$193.6 million—or 0.14 Canadian dollars per common share. It was down from net earnings of $680 million Canadian dollars, or 0.45 Canadian dollars per common share, for the same quarter last year.
The earnings were negatively impacted by after-tax impairment charges of $718 million. It was also impacted by the charges on the company’s interest in the Joslyn mining project.
In May 2014, Total E&P Canada—the operator of the Joslyn mining project, together with Suncor and the other co-owners of the project Occidental Petroleum and Inpex Canada—agreed to scale back certain development activities in order to focus on engineering studies. They wanted to optimize the project development plan more.
Andre Goffart, chief executive of Total E&P Canada, told reporters in May that the “the costs at Joslyn are continuing to inflate when the oil price and specifically the netbacks from the oil sands are remaining stable at best—squeezing the margins.”
The project was valued at $11 billion. It’s supposed produce 100,000 barrels of bitumen per day starting in 2020.
Suncor Energy also incurred $297 million charge against the company’s Libyan assets due to continued political unrest. It also incurred $223 million in Oil Sands following a review of certain assets that no longer fit with Suncor’s previously revised growth strategies.
Exploration and Production segment volume sees decline
The company said production volumes for the Oil Sands operations increased to an average of 378,800 barrels per day (or bpd) in 2Q14—compared to 276,600 bpd in the same quarter last year. The increase was due to lower planned and unplanned maintenance in the current quarter.
Production volumes for the Exploration and Production segment decreased to 115,300 barrels of oil equivalent per day (or boe/d) in 2Q14. Production volumes were 190,700 boe/d in the same quarter last year. Last year’s volumes were due to the sale of the company’s conventional natural gas business. The volumes were also impacted by negligible production in Libya.
Lowers capex outlook for 2014
Suncor said its outlook for capital expenditures (or capex) in 2014 has been lowered from $7.8 billion to $6.8 billion. This is consistent with the company’s ongoing commitment to capital discipline.
Management noted in the earnings release that, “In the second quarter, we took advantage of strong upstream pricing to generate $2.4 billion of cash flow from operations. We also reduced our cash operating costs per barrel at Oil Sands operations by 27% from 2Q13, thanks to a strong ramp up of Firebag production and our commitment to cost management.”
Raises dividend by 22%
The company said it saw a a 66% increase in free cash flow to $3.599 billion for the 12 months ending June 30, 2014—compared to the same period last year. In 2Q14, Suncor delivered value to shareholders through $338 million in dividends—$0.23 per common share—and $271 million in share repurchases. Its board approved a dividend of $0.28 per common share—a 22% increase over the dividend last quarter.
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