Montreal

Image source: Suncor Energy.

This past year has been really tough on oil companies, especially those in Canada, where oil prices can at times run at a steep discount to global pricing. Suncor Energy (NYSE:SU), however, is one of the few Canadian oil companies managing the downturn in oil prices relatively well. For evidence of that, we need to look no further than the company's recent third-quarter report. Here are three takeaways from that report. 

1. The power of integration
For the third quarter, Suncor Energy produced an impressive C$1.88 billion of cash flow from operations. What's impressive about that is the fact that it's not all that far off from the C$2.28 billion in cash flow it produced in last year's third quarter. This was in spite of the fact that the company's average realized price per barrel was just $47.93 during the quarter, which is well below the $89.38 it realized in the third quarter of last year.

Offsetting some of the oil price weakness was Suncor's refining and marketing segment, which operated exceptionally well during the quarter. Not only did its refineries improve utilization from 94% in the year-ago quarter to 96% during the current quarter, but they actually benefit from lower oil prices because it lowers the input costs. Because of this, refiners act as a natural hedge against falling oil prices, showing the power of having an integrated business model.

2. The right downturn formula
In addition to the benefits from its refineries, Suncor also benefited from two other important factors: lower costs and higher production. During the quarter, the cash operating costs at Suncor's oil sands operations were just $27 per barrel. That's down from $31 per barrel just last quarter and is now at the lowest level since 2007. In addition to that, Suncor's production continues to grow: It's up from 519,300 barrels of oil equivalent per day, or BOE/d, in the year-ago quarter to 566,100 BOE/d during the third quarter. This combination of lower costs and higher production is the clear winning formula for delivering cash flow amid weak oil prices.

3. Still focused on the future
Even in the midst of a tough oil market downturn, Suncor Energy has its eyes on the future. That was pretty clear from its report, with the company noting several strategic developments it has in process to drive further improvements in its operations.

Among the largest projects is the company's Fort Hills oil sands mine, which it co-owns with Total (NYSE:TOT) and Teck Resources (NYSE:TECK). The $15 billion project is currently 43% complete and is expected to deliver first oil in late 2017. However, in addition to continuing to invest to bring this project online, Suncor is taking advantage of the downturn to increase its ownership interest in the project after it offered to buy another 10% stake from Total during the quarter. It has agreed to pay Total C$310 million for that stake, which will bring its ownership in the project to 50.8%, with Total owning 29.2%, and Teck Resources holding the last 20%. While both Total and Teck Resources still believe in the project, neither has the cash resources nor the oil sands operational expertise of Suncor, which is why it's the one taking more control.  

In addition to that transaction, Suncor launched an unsolicited bid to buy Canadian Oil Sands (TSX:COS) for C$6.6 billion. It is after Canadian Oil Sands in an effort to increase its control of another large oil sands project: Syncrude. Canadian Oil Sands currently owns 37% of Syncude, while Suncor owns 12% of the project. One of the reasons Suncor would like a larger stake in Syncrude is because it believes it could do a better job running the project than the current operators, but it wouldn't have that influence unless it had more control. CEO Steve Williams laid out its rational:
  Oilsandsopenpitmining

Image source: Suncor Energy.

We believe that we can drive real improvements in Syncrude's performance with a larger ownership interest ... We have been disappointed with Syncrude's performance for some time now. The asset ran at only 67% of capacity during the third quarter, and about 70% so far this year, in stark contrast to Suncor's upgrading operations that have been consistently achieving above 90% reliability this year.

While Suncor might do a better job improving the operations at Syncrude, it has to first convince Canadian Oil Sands to accept its offer. That will be a tough sell after the company not only rejected the deal, but is pulling out all the stops to prevent Suncor from taking it over.

Investor takeaway
Suncor Energy's third-quarter report made three things very clear. First, being an integrated oil company really pays off during a downturn. Second, it has the right formula for success, that being a relentless focus on reducing costs while pushing production higher. And finally, it's not taking its eyes off the future, which is why it has been aggressively trying to take advantage of opportunities to gain more control over its destiny by seeking to control a greater share of its assets.

Matt DiLallo has no position in any stocks mentioned. The Motley Fool recommends Total (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.