DBRS Confirms Suncor Energy Inc. at A (low) and R-1 (low), Stable Trends; Discontinues PC Financial Partnership

DBRS Limited (DBRS) confirmed Suncor Energy Inc’s (Suncor or the Company) Issuer Rating and the rating of its Debentures and Medium-Term Notes at A (low), both with Stable trends, and confirmed the rating of Suncor’s Commercial Paper at R-1 (low) with a Stable trend. Suncor Energy Oil Sands Limited Partnership (SEOSLP) holds the majority of Suncor’s interests in its oil sands assets and is indirectly a wholly owned subsidiary of the Company. Since the Commercial Paper and Debentures and Medium-Term Notes of Suncor are guaranteed by SEOSLP, DBRS assesses the credit quality for all ratings of Suncor on a consolidated basis. DBRS also discontinued the rating of the Senior Notes issued by PC Financial Partnership due to repayment. The Senior Notes were guaranteed by both Suncor and SEOSLP.

The ratings are supported by the Company’s considerable size (production of 732,000 barrels of oil equivalent per day and refinery throughput of 430,800 barrels per day (bbls/d) in 2018); highly integrated operations; long-life, low-decline oil sands assets; and its capital flexibility and operational efficiency. The Company’s capital flexibility has improved markedly since late 2017 following completion of the Fort Hills oil sands mining project and since most of the capital spending at the Hebron oil development, located offshore Newfoundland, has been completed. Operational flexibility has increased as a result of the Company’s efforts to lower costs and to improve reliability at its oil sands operations. The Company indicates that it can cover sustaining capital and the current dividend down to a West Texas Intermediate (WTI) oil price of USD 45/bbl.

The Company’s financial profile has been relatively stable over the past year. In 2018, the Company generated a free cash flow surplus (cash flow after dividends and capital expenditures (capex)) of $2.4 billion. With this surplus, additional debt and a positive change in non-cash working capital requirements, the Company repurchased shares (net of shares issued) for $2.8 billion and funded acquisitions plus investments (net of dispositions) of $1.3 billion. Cash flow has risen in line with an increase in debt such that Suncor’s lease-adjusted debt-to-cash flow ratio in 2018 was 1.77 times (x) compared to 1.80x in 2017. The lease-adjusted EBIT interest coverage ratio was 7.37x in 2018 versus 5.00x in 2017. Both ratios were outside the “A” range while the lease-adjusted debt-to-capital ratio of 29.2% was within the “A” range. Based on the Company’s planned capex program of $4.9 billion to $5.6 billion (excluding capitalized interest) in 2019 and DBRS’s WTI oil price estimate of USD 55/bbl, DBRS projects a free cash flow surplus of approximately $2.0 billion this year. DBRS notes the Company has indicated plans to use an anticipated surplus to buy back more shares (up to $2 billion buyback program recently approved) and reduce indebtedness. DBRS anticipates that the Company’s financial profile in 2019 and 2020 should support the Company’s A (low) ratings. The ratings are also supported by Suncor’s favorable liquidity profile ($2.2 billion of cash and $3.6 billion available on its credit facilities as at December 31, 2018).

Notes:
All figures are in Canadian dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrs.com.

The Commercial Paper and Debentures and Medium-Term Notes are guaranteed by SEOSLP, and PC Financial Partnership’s Senior Notes are guaranteed by Suncor and SEOSLP.

The principal methodologies are Rating Companies in the Oil and Gas and Oilfield Services Industries (August 2018), DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers (March 2019) and DBRS Criteria: Guarantees and Other Forms of Support (January 2019), which can be found on www.dbrs.com under Methodologies & Criteria.

The rated entity and its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity and its related entities in connection with this rating action.

DBRS will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrs.com.

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