Slowing industrial activity in North America and China has pushed down oil demand. At the same time, rising shale oil production from North Dakota’s Bakken region has increased inventories. Both of these factors have weighed on prices. However, low prices are a mixed blessing for integrated oil companies like Suncor Energy. They earn less profit by producing crude, but their refineries also pay less for the oil they use. SUNCOR ENERGY INC. (Toronto symbol SU; www.suncor.com) recently agreed to sell its conventional natural gas operations in Alberta, northeastern British Columbia and southern Saskatchewan for $1 billion. The deal does not include Suncor’s undeveloped shale gas and oil properties in B.C. and Alberta. The cash from this sale prompted Suncor to raise its quarterly dividend by 53.8%, to $0.20 a share from $0.13. The new annual rate of $0.80 yields 2.5%. The company also plans to buy back up to $2 billion of its shares over the next five months. In addition, Suncor continues to expand its oil sands operations. In the three months ended March 31, 2013, the company produced an average of 596,100 barrels of oil equivalent (including gas) a day. That’s up 6.0% from 562,300 barrels a year earlier. The gain is mainly due to its Firebag oil sands project, which increased its production to 137,000 barrels a day from 83,600 a year earlier. Firebag’s output should rise to 180,000 barrels a day by early 2014. [ofie_ad]
Energy stocks: Suncor cancels project to convert bitumen into lighter oil
Thanks to the higher production and a 9% drop in operating costs at its oil sands projects, Suncor’s earnings per share before unusual items rose 25.0%, to $0.90 from $0.72. Lower oil prices also boosted earnings at the company’s oil refineries, which accounted for 45% of its overall profits. However, cash flow per share fell 3.2%, to $1.50 from $1.55. That’s mainly due to the extra costs related to Suncor’s recent decision to cancel its Voyageur project, which was 15% completed when the company halted construction. Voyageur would have upgraded bitumen from the oil sands into a lighter oil that’s easier to pump through pipelines. Suncor’s stock trades at just 9.4 times the company’s forecast 2013 earnings of $3.40 a share and 5.0 times its likely cash flow of $6.46 a share. In the latest edition of The Successful Investor, we look at the outlook for oil prices over the next few years and how that will affect Suncor’s refining business. We also examine how a shortage of pipeline capacity will likely affect the company’s oil sands projects over the next few years. We conclude with our clear buy-sell-hold advice on this stock. (Note: If you are a current subscriber to The Successful Investor, please click here to view Pat’s recommendation. Be sure to log in first.) COMMENTS PLEASE—Share your investment knowledge and opinions with fellow TSINetwork.ca members With haggling over pipelines like Keystone XL and the Gateway project, and environmental lobbying over the oil sands (such as that of the European Union), do you believe the oil industry will get bogged down in regulatory and environmental concerns? Or do you believe that the concept of developing a secure source of energy in North America will ultimately trump any such concerns? Let us know what you think.
