Canadian oil giant Suncor Energy Inc's (NYSE: SU) recently reported second-quarter results were surprising, to say the least. Despite the persistent downturn in the oil market, the company reported much stronger than expected results. Those strong results, however, weren't the only surprise the company had in store for investors.
1. We beat the odds and beat the estimates, too (Note: in Canadian dollars)
While several oil-related companies have been able to squeak past analysts' estimates this past quarter, Suncor Energy did that and more. The company absolutely smashed estimates as it reported earnings of $0.63 per share, which was more than double the consensus estimate of $0.30 per share. Driving this much stronger than expected result was surging oil production against a backdrop of dramatically falling operating costs.
Production for the quarter averaged 558,900 barrels of oil equivalent per day, or BOE/d, which was well above last year's average of 518,400 BOE/d. Driving this surge was a 45,000 BOE/d increase in the company's oil sands operations, which overcame planned maintenance at the company's Firebag facility to drive strong growth. Meanwhile, cash operating costs fell to just $28 per barrel in the quarter, which is $6.10 per barrel lower than the year-ago quarter.
What's even more remarkable is the fact that Suncor was able to produce $2.16 billion in cash flow from operations, which is only slightly lower than the $2.41 billion it delivered in the year-ago quarter. This is despite a 40% year-over-year drop in the crude oil benchmark price.
2. We're boosting our dividend while others are cutting them
That cash flow was actually more than enough to cover the company's capital expenses for the quarter as well as its dividend payments. As a result of that, and the fact that the company is reducing its capex guidance by another $400 million for the balance of the year, it has some extra cash to spare.
That extra cash is behind the company's surprising announcement that it intends to increase its dividend by a penny to $0.29 per share -- quite a feat considering several notable energy companies recently announced the elimination of dividend payments as the downturn persists.
3. We're even reinstating our stock buyback program
What's just as surprising is the fact that the company intends to also renew its share repurchase program, which it suspended in February in response to the lower crude price environment. As the chart below shows, the company had been very active in repurchasing its stock, having bought back an average of roughly US$350 million in stock per quarter over the past few years.
SU Stock Buybacks (Quarterly) data by YCharts.
In reinstating the buyback, the company can get quite a nice discount on any near-term repurchases given that its stock price is now down more than 30% over the past year.
Investor takeaway
Suncor Energy delivered a surprisingly exceptional quarter as the company's earnings blew past analysts' estimates. In fact, the company made enough money that it's now giving more of it back to investors as it's boosting its dividend and reinstating its stock buyback program. Suffice it to say, the company doesn't appear to be very worried about the oil market at the moment.
