It’s transformation time for Suncor

Suncor Energy is one of the largest integrated energy companies in the world and a leading oil producer in Canada. The company engages in oil sands operations, offshore oil and gas production, petroleum refining, and marketing.

In addition, Suncor is involved in energy trading and operates a renewable energy business. It owns international and offshore assets in key strategic geographic locations like the U.K. North Sea, Canada’s east coast, and Norway which provides steady and diversified cash flow. 

The company operates four refineries, Canada’s largest ethanol plant, wind farms, and a network of 1,880 retail sites in North America. As Canada’s leading integrated company, Suncor owns 600 mboe/d heavy upgrading capacity, and ~465 mbpd refining capacity. It increased the nameplate capacity at Firebag and Edmonton refinery in the last year.

The company has operations across the entire value chain, including resource extraction, upgrading, refining and marketing, and midstream logistics. A holistic presence across upstream, midstream, and downstream cushions Suncor from price volatility in the energy market.

SU is also available as a dual listed stock trading under SU on the NYSE.

DISCLOSURE: Please note that links to merchants mentioned within this post might be using an affiliate link. Using an affiliate link means that, at zero cost to you, I might earn a commission if you buy something through that affiliate link.
Investment Data
 

Revenue Growth & Market Exposure

Suncor Energy derives a majority of its revenues from its oil sand business and holds one of the largest positions in oil sands. The oil sands make up 7.37 of the 7.79 billion barrels of Suncor’s proved plus probable reserves. Suncor’s core oil sands production is complemented by its international and offshore assets that provide stable, low-cost cash flow.

Suncor is strategically focused on developing Canada’s Athabasca oil sands, which is one of the largest petroleum resource basins in the world. The company deploys in-situ technology for mining and believes the next phase of growth will be in situ sites. 

In more than 50 years of its existence, Suncor has developed a long-life, low-decline reserve base with a proven life of 29+ years, which sets it apart from its peers. In addition, its offshore business provides geographic and cash flow diversification, while its midstream assets provide operational flexibility. 

As an integrated energy company, Suncor’s presence across the entire value chain insulates it against volatility in any one segment. The company’s focus on cost reduction as well as production growth should drive future profitability. Projects like Fort Hills, Hebron, and Syncrude are expected to add value for its shareholders while increasing long-term profitability for the company. It is also making progress on new technology development which has the potential to significantly reduce capital and operating costs. It has spent more than $2 billion in this regard since 2015.

Despite a challenging business environment due to the pandemic and low commodity prices, Suncor exceeded its operating cost reduction target, met its full year capital reduction target, and executed on key strategic projects during the last quarter of FY2020.

The company achieved total upstream production of 769,200 boe/d and SCO production of 514,300 bbls/d during the quarter. The interconnecting pipelines between Suncor’s Oil Sands Base and Syncrude were also brought into service during the quarter. Its refinery utilization stood at 95% compared to 97% in the prior year quarter. The company is estimating a total upstream production of 740,000-780,000 boepd and a refinery utilization of 90%-96%for FY 2021.

Dividends

Suncor is a shareholder-friendly company deploying a combination of share repurchases and dividends to reward its shareholders. Its dividend growth has been quite impressive with the last ten years showing a CAGR of more than 18%. Suncor has been paying dividends for the last 27 years but had to cut its dividend by 54% in the last year. It sports a dividend yield of 3.5% currently. 

The company had suspended its share buybacks and CapEx during 2020, in response to the decline in crude oil prices and the economic impact of the coronavirus. It however, plans to resume share repurchase in 2021.

In the fourth quarter of 2020, Suncor paid $320 million in dividends and later approved a quarterly dividend of $0.21 per share. The company is estimating $2 billion in free funds flow growth by 2024-25 and is well-positioned to generate huge free cash flow on the back of recovering oil prices in 2021.

Suncor’s vertically integrated business model has made it a market leader both in terms of funds from operations and discretionary free cash flow per barrel. As Canada’s leading integrated energy company, Suncor Energy stands in a good position to benefit from rising oil demand and growing offshore businesses.

Its downstream integration business plays a major role in reducing the impact of wider heavy crude differentials. Suncor also continues to invest in midstream opportunities which will expand its market reach and strengthen its sales channels. The company also continues to make investments in new technologies and renewable energy.

Suncor, along with the other Syncrude joint venture owners, are expected to drive operating efficiencies and develop regional synergies to the tune of $300 million annually. The company also met its $1.9 billion capital reduction target by the end of 2020. It cut its annual operating costs by 12% YoY. Suncor plans to pay down $1-$1.5 billion of debt and repurchase ~$500 million-$1 billion worth of shares in 2021.

Suncor (SU) historical yield
Make your own charts. Try Stock Rover NOW!

Competition

Suncor competes with other oil and gas companies, and companies that provide alternative sources of energy. Suncor leads the industry in terms of FFO per barrel. The company faces intense pressure in virtually every aspect of its business.

Suncor competes with the likes of Canadian Natural Resources which holds some of the best oil sands assets in North America, particularly thermal in situ properties. Another competitor is Cenovus Energy, a large Canadian integrated oil and gas company that doubled its oil sands production after the acquisition of most of ConocoPhillips’ operations in Western Canada.

Imperial Oil is another large integrated energy company in Canada having a presence in both upstream and downstream businesses and is the largest refiner of petroleum products.

TickerKeyTickerCompanySectorIndustryScoreQuoteMarket CapP/EFPEEPSYield RawYieldPayoutRatioPaymentsDividendChowderGrowthRatingIncomeRatingTollboothAmbassadorAchieverAristocratKingCountryGraph
TSE:SUSUSuncorEnergyOil & Gas Integrated0.3026.2932.510.000.00-2.830.03203.201.000040.840.032014Consumable - NecessitiesNONONONOCanada1
TSE:IMOIMOImperial OilEnergyOil & Gas Integrated0.3935.5021.160.000.00-2.530.02482.481.000040.880.099055Consumable - NecessitiesNOYESYESNOCanada1
TSE:CVECVECenovus EnergyEnergyOil & Gas Integrated0.149.5715.680.000.00-1.940.00730.731.000040.070.007302IntermediateNONONONOCanada1

Bottom Line

Suncor is an industry leader with a balanced portfolio of high-quality assets, significant growth prospects, and proven operational excellence. The company’s significant long-life reserves base, industry expertise in oil sands, and economies of scale act as strong tailwinds.

The company aims to deliver annual cash returns of 6% to 8%, as market demand recovers and commodity prices increase. Continuous efforts towards increasing production and reducing costs and a history of strong FFO generation should aid future dividend growth.

SU vs TSX vs SP500
Dividend Adjusted Chart by Stock Rover - Try it out.
Suncor (SU) historical pe
Make your own charts. Try Stock Rover NOW!

A Winning Investment Strategy

My portfolio is generating over 12% annual returns since 2009. It's not from the beginning of the year or from 2019, it's from 2009 !!! That's a consistent return which means using the rule of 72, I double my portfolio every 6 years.

My approach is simple but you need key data that I have cultivated with the Dividend Snapshot Screeners. No other investment services provide you with easy to understand data but also actionable data. No hidden magic.

In fact, I have tried all of the investment services for dividend investors like a crash test dummy of investment services. Just ask me, and you'll learn why there was nothing I could use out there and that's how the Dividend Snapshot Screeners were borned!

Join 128,000+ Monthly Investors & Build a Winning Portfolio

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.