Strathcona’s Q3 2024 Earnings Slip Despite 21% Production Boost as Prices Falter
Strathcona Resources (TSX: SCR) has released its third-quarter 2024 results, showing a mixed performance driven by solid production numbers but a noticeable impact from the weaker pricing environment.
The company’s production reached an average of 178,235 barrels of oil equivalent per day (boe/d), a modest 1.9% decline from the previous quarter’s 181,766 boe/d. This figure, however, represents a substantial 21% year-over-year increase from Q3 2023’s 147,461 boe/d, largely attributed to the company’s ongoing investments in its Cold Lake, Lloydminster, and Montney assets.
Despite this production strength, Strathcona’s financial results reflect the challenges of a subdued commodity price environment, which weighed heavily on the company’s overall revenue and cash flow generation. Strathcona reported oil and natural gas sales, net of blending costs, of $1.041 billion, down from $1.184 billion in the prior quarter and a slight decrease from $1.063 billion in Q3 2023.
The decline in sales is primarily due to lower realized prices for both oil and natural gas. West Texas Intermediate (WTI) crude prices averaged $75.10 per barrel, down from $80.57 in Q2 2024 and $82.26 in Q3 2023. In Canada, the benchmark Western Canadian Select averaged C$83.96 per barrel, a dip from the prior quarter’s C$91.63.
The most striking price impact came from natural gas, as AECO, Alberta’s natural gas benchmark, plunged to an average of C$0.69 per mcf, significantly lower than C$1.18 in the previous quarter and drastically down from C$2.60 a year earlier.
Operating earnings fell to $265.4 million, down from $306.1 million in the previous quarter and $289.9 million in Q3 2023. This decrease is a direct reflection of both pricing pressures and escalating operating costs, as the effective royalty rate for the quarter increased to 12.9%, compared to 12.4% in Q2 and 11.7% a year earlier. Production and operating expenses also rose to $185.9 million, up from $214.4 million last quarter and a slight decline from $195.3 million in Q3 2023.
Free cash flow was reported at $200.6 million, a 19% sequential decrease from $247.3 million in Q2 2024. Year-over-year, however, free cash flow saw an improvement from $158 million in Q3 2023. Funds from operations amounted to $528.7 million in Q3, slightly down from $547.6 million in Q2 but substantially higher than the $425.3 million reported in Q3 2023.
Capital expenditures for the quarter reached $319.6 million, up from $297.4 million in Q2 2024 and $260.2 million in Q3 2023. This increase aligns with Strathcona’s strategy to continue ramping up production through heavy investment in assets, including the Cold Lake and Lloydminster properties.
Debt remains a key concern, as Strathcona’s total debt was reported at $2.449 billion, slightly up from $2.435 billion in the previous quarter. While the company has made progress on reducing its debt load from $2.787 billion a year ago, the persistence of high leverage continues to weigh on Strathcona’s balance sheet.
In terms of guidance, Strathcona made the decision to increase its 2025 capital budget to $1.35 billion from $1.3 billion in 2024, with plans to achieve a modest 4% production increase at the midpoint of its guidance. Additionally, the company’s outlook for free cash flow generation in 2025, estimated at $700 million based on a $70 WTI scenario, relies heavily on external price conditions.
Strathcona Resources last traded at $28.69 on the TSX.
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