Must-Read Company Overview of Suncor Energy: An Oil Sand Play
SU’s segmental analysis: Upstream segment
Suncor Energy (SU), an integrated energy major, has three main segments: Oil Sands, Exploration and Production (or E&P), and Refining and Marketing.
Changing oil prices have changed the segment dynamics within Suncor. The Oil Sands and E&P segments, which contributed a majority of the operating income in 4Q14, have posted operating losses of $230 million Canadian and $50 million Canadian, respectively, in 4Q15. This is on the back of falling crude oil prices. WTI (West Texas Intermediate) prices, which averaged $73 per barrel in 4Q14, slipped to $42 per barrel in 4Q15.
The situation is similar for SU’s peers ExxonMobil (XOM) and Royal Dutch Shell (RDS.A), which have witnessed a steep fall in upstream earnings in 4Q15. On the other hand, BP Plc (BP) and Chevron (CVX) have reported losses in their Upstream segments in 4Q15. The iShares US Energy ETF (IYE) has a 46% exposure to integrated energy sector stocks.
Downstream segment’s operating income
On the other hand, the Refining and Marketing segment witnessed about a threefold rise in operating income in 4Q15. The segment’s operating income rose from $173 million Canadian in 4Q14 to $498 million Canadian in 4Q15. The Refining and Marketing segment contributed the main portion of the 4Q15 earnings.
This shows that the fall in crude oil prices has altered segment play in Suncor. No doubt, its overall operating earnings fell from $386 million Canadian in 4Q14 to -$26 million Canadian in 4Q15. However, the Refining and Marketing segment has notably resisted the decline. Currently, in the falling oil price scenario, this segment is an earnings savior for Suncor.
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