Suncor Energy (SU) - Q3 2025 Conference Call

Highlights from Suncor's Q3 2025 conference call:

• Upstream production, 870,000 bbl a day in the third quarter, far and away our best third quarter ever. In fact, 41,000 bbl a day higher than our previous best, which was achieved last year.
• Refining throughput, 492,000 bbl a day in the third quarter, our best quarter of any quarter ever, exceeded our previous best, the third quarter of last year. The third quarter is typically the highest throughput quarter each year.
• Recognizing all sales are not created equal, our highest margin retail sales are up 8% year-on-year, while lower margin export sales are down 11% year-on-year. 
• Operating costs, year-to-date OS&G, CAD 9.7 billion, essentially flat with year-to-date 2024. Despite 32,000 bbl a day higher upstream production, 14,000 bbl a day higher refining throughput, and 21,000 bbl a day higher product sales, higher volumes, lower unit costs. 
• Turnarounds, on our second quarter call, we shared second quarter turnarounds were completed at historically low cost and best-ever durations. Our third quarter turnarounds were completed equally well. A couple of examples: Montreal Refinery, our hydrocracker and hydrogen plants. Previously, 55 days to complete the work. We budgeted it at 50. We completed it in 40, going from industry fourth quartile to second quartile. Previously, it cost us CAD 80 million. We budgeted it at 71. We completed it for 62, again going from industry fourth to second quartile. I am really pleased to say it was completed without so much as a cut finger or a spilt barrel.
• We've dramatically reduced our WTI breakeven and at the same time reduced our net debt. We've materially grown free funds flow, fueling higher return of capital to shareholders.
• A few illustrations: third quarter 2025 AFFO, CAD 3.8 billion with WTI at CAD 65 a barrel. Last time we had CAD 3.8 billion AFFO was the third quarter of 2024, with WTI at CAD 75 a barrel.
• Third quarter free funds flow, CAD 2.3 billion, the highest operationally since fourth quarter of 2022 when WTI averaged CAD 83 a barrel, CAD 18 higher. Year-to-date free funds, CAD 5.2 billion, within CAD 200 million of 2024, despite oil prices being CAD 11 a barrel lower. Buybacks, CAD 250 million a month in 2025, every month. Independent of oil price, CAD 250 million when WTI was CAD 75 in January, CAD 250 million when WTI was CAD 61 in May. Year to date, we bought back more than 42 million shares, 3.4% of our float, at an average cost of CAD 53. Year-on-year, CAD 340 million more in buybacks, despite oil prices being down CAD 9 a barrel. At today's oil price, I strongly believe buying our stock is our best investment, and we intend to keep buying it month after month after month.
• Rich has previously described this as our ability to make craft cocktails for our customers. It is this competitive advantage, coupled with our strong logistics and trading capabilities, that enabled us to sell our oil sands barrels at 96% of average WTI over the quarter. Our downstream margin capture is consistently above industry benchmarks. This quarter was no exception, with margin capture at 92% of our custom 5221 index, an index which represents the margin power of our downstream business. LIFO gross margin was CAD 28.87 versus an average New York Harbor and Chicago 321 crack of CAD 26.39. Suncor is quite simply a margin machine, and this should be recognized as a core driver of this company's value proposition.

It would be hard to understand this quarter's oil results without the framework of cornucopianism. Producers are getting more efficient, increasing the supply and driving the price of oil down. ("Higher volumes, lower unit costs.") 

The most efficient, lowest cost producers' profit holds up reasonably well and so do the owners of low cost minerals. It is not great for owners of higher cost minerals! This may be why we are seeing a pronounced divergence between the share prices of Suncor and Dorchester, for example.

The current market capitalization of SU (at a $44.23 share price) is $53 billion and its enterprise value is $61 billion. (Net debt of $5.1 billion plus other liabilities.) Suncor returned $1.02 billion of value to shareholders in the third quarter with $490 million in share repurchases and $530 million in dividends, for an annualized shareholder yield of 7.7% on the current market capitalization. As of October 31 (not September 30) the number of shares outstanding is down 3.8% year-over-year. 

Suncor's adjusted funds from operations was $2.7 billion which was about the same as a year earlier. Capital expenditure was $1 billion which was also the same as the year earlier. The resulting free cash flow for the quarter was $1.7 billion (again, same as in 2024), which is an 11% yield (annualized) on the enterprise value. Capital expenditures were roughly flat while upstream production was up 6%, year-over-year. This was in an environment of $65/bbl WTI compared with $75 a year earlier. As mentioned in the conference call notes above, Suncor kept profits flat despite a $10/bbl oil price decline! (The WCS spread was $10.40/bbl vs $13.50 a year earlier.)

Suncor generated $2.1 billion of funds from operations from oil sands, $200 million from other upstream (e.g. offshore production) and $863 million from downstream (refining and marketing). The refining and marketing helped keep profits flat despite the oil price decline because they generated $366 million more funds from operations than the prior year. 

Suncor's proprietary 5-2-2-1 crack spread was $31.20 versus $26.05 the prior year and the company had higher refinery utilization/throughput, as was mentioned in the call note above. Suncor gets more diesel out of a barrel than a generic refinery refining lighter crude. Also, Suncor captures some of the retail margin via its fuel stations in Canada.