Wednesday, May 15, 2019

A Current AIM International Equity Holding: Suncor Energy ($SU, $31.66): “Sunny in Alberta” By: Ben Schmidt, AIM Student at Marquette University


Suncor Energy ($SU, $31.66): “Sunny in Alberta”
By: Ben Schmidt, AIM Student at Marquette University



Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

 Summary

Suncor Energy, Inc. (NYSE:SU) is a Canadian integrated energy company which develops petroleum resource basins through offshore oil and gas production, petroleum refining and product marketing.  

• Suncor achieved 98% upgrader utilization despite production curtailments by the Government of Alberta. Historically in the Oil Sands, only about 40% is upgraded into synthetic crude oil (SCO).

• Total upstream production was 764.3 thousand barrels of oil equivalent per day (kboe/d), up from 689.4 (kboe/d) in 4Q2018. Total Oil Sands production was 657,200 barrels per day (bbls/d), compared to 571,700 bbls/d in the prior year quarter.

• Despite weak oil prices in the back half of FY2018 and early FY2019, SU still delivered $2.6 billion of cash from funds from operations in 1Q2019.

• They delivered $662 million in dividends to shareholders while also buying back $514 million of common shares in the first quarter of 2019.

Key points: 

In early December, the government in Alberta decided to impose production cuts of 325k barrels per day in response to a widening differential of the Western Canadian Select (WCS) to the WTI. This is largely attributable to the lack of takeaway capacity in Canada. As SU continues to produce more oil YoY, they have been realizing prices at lower than historical prices.  

Due to the large overcorrection in differentials, Alberta began easing up on production curtailments. This decision ultimately raised their realizable prices per barrel which translated into positive Net Income of $1.5 billion, up from ($212 million) in 4Q2018. Despite the increases in Net Income, cash operation costs in the Oil Sands rose $3.10 per barrel to $29.95 largely in part to the production curtailments. Moving forward, as production activity increases and economies of scale takes place, these costs should start to trend down towards historical averages. Suncor expects these curtailments to trend closer to 175 kboe/d by June, allowing them to get in line with their 2019 guidance. Once this happens, they will begin working on optimizing their asset performance and safety to deliver stronger performance for the rest of FY2019. Furthermore, SU’s BOD approved a 17% dividend increase on ~ 1.7 billion and up to $2.0 billion for share repurchases on an annual basis.

On April 19th, the United Conservative Party of Alberta formed a ruling majority with 63 out of the 87 seats in the provincial government. With years of negligence from the New Democratic Party in forming deals for the energy industry Alberta, this should help turn things around and set up a fierce battle with the federal government. Before coming into power, their platform included an 8% corporate tax rate which reduces it from 12%. Also, they have proposed to decrease the carbon tax to spark more growth from the energy industry in hopes to spur job creation. Lastly, they would set up a $30 million “war room” in Canada and internationally to defend Alberta’s energy industry. If any or all of these come to fruition, Suncor stands to benefit.

What has the stock done lately?

On November 14th, the CEO of Suncor decided to retire. Around this same time period, Canada decided to cut production by 325k barrels per day. With these two negative announcements, the stock plummeted to a yearly low of ~ $27/share. Since then, the company announced that they were going to expand production by 10% during 2019 to an average of 820,000 boe/d for FY2019. Soon after this, the differentials between the WCS and WTI tightened sending the stock back up to around $32/share. It has hovered around this price for the past months of March and April.

 Past Year Performance: 

Over the past year, the volatility in Suncor can be attributed to the wild swings in oil prices, production curtailments and earnings announcements. Since the middle of August, Suncor sat at its 52 week high of $42/share – the height of oil prices for 2018. As prices started deteriorating, so did the stock. It fell to a yearly low of $26.5/share, a depreciation of 36.9%.



Source: FactSet

My Takeaway:

Suncor finds itself in a lucrative to benefit from certain favorable domestic and macro factors. The differential in the WCS has been at historic lows at has rebounded since the production cuts levied by the Canadian government continues to ease. With this, Suncor will be able to realize better prices per barrel and are to produce at rates they see fit. Moreover, takeaway capacity continues to get built out in Canada and the U.S. allowing maximum production. From a valuation perspective, their EV/EBITDA multiple of 6.57x is in line with peers despite weak EBITDA performance this past year. Also, Suncor holds one of the largest balance sheets among its peers in Canada. Since E&P’s benefit from scale, Suncor is once again a value play in the portfolio.



Source: FactSet

6 comments:

  1. Hello everyone..Welcome to my free masterclass strategy where i teach experience and inexperience traders the secret behind a successful trade.And how to be profitable in trading I will also teach you how to make a profit of $12,000 USD weekly and how to get back all your lost funds feel free to email me on(brucedavid004@gmail.com) or whataspp number is +22999290178








    Hello everyone..Welcome to my free masterclass strategy where i teach experience and inexperience traders the secret behind a successful trade.And how to be profitable in trading I will also teach you how to make a profit of $12,000 USD weekly and how to get back all your lost funds feel free to email me on(brucedavid004@gmail.com) or whataspp number is +22999290178



    ReplyDelete
  2. I have read all your posts
    We have different students from different countries on Online Quran Aacdemy

    ReplyDelete
  3. Hello Everybody,
    My name is Mrs Sharon Sim. I live in Singapore and i am a happy woman today? and i told my self that any lender that rescue my family from our poor situation, i will refer any person that is looking for loan to him, he gave me happiness to me and my family, i was in need of a loan of $250,000.00 to start my life all over as i am a single mother with 3 kids I met this honest and GOD fearing man loan lender that help me with a loan of $250,000.00 SG. Dollar, he is a GOD fearing man, if you are in need of loan and you will pay back the loan please contact him tell him that is Mrs Sharon, that refer you to him. contact Dr Purva Pius, call/whats-App Contact Number +918929509036 via email:(urgentloan22@gmail.com) Thank you.

    ReplyDelete
  4. PLEASE READ PLEASE READ

    Hi, yes its real just got my blank atm card,from MR GEORGE. he is really good at what he is doing. met some people but they ran away with my money but mr george sent me the card two days ago through courier service in my country. The card programmed for only money withdraws without being noticed and can also be used for free online purchases of any kind. The application process is so simple, i have tried mine with the closest ATM machine close to me, to my greatest surprise It worked like magic. I was able to withdraw up to $3000 daily, i dont have to worry about getting a loan anymore.This ATM has really change my life. If you want to contact them.
    Here is the email address georgewilder402@gmail.com

    ReplyDelete
  5. Do you need a loan .We are Legitimate and guarantee loan lender. We are a company with financial assistance. We loan funds out to individuals in need of financial assistance, that have a bad credit or in need of money to pay bills, to invest on business. I want to use this medium to inform you that we render reliable beneficiary assistance as We'll be glad to offer you a loan Contact us via Email: pennymarkloanservices@gmail.com

    Services Rendered include

    *Home Improvement
    *Inventor Loans
    *Car Loans
    *Debt Consolidation Loan
    *Line of Credit
    *Second Loan
    *Business Loans
    *Personal Loans
    *International Loans.

    Write back if interested with our interest rate of 3% annual. Contact us via Email: pennymarkloanservices@gmail.com
    Please Note: All interested individual must send a message to our email for urgent response and details to obtain a Loan.

    Best Regards.

    ReplyDelete
  6. What is Tajweed? It means to read Quran beautifully. Moreover, it means that to vocalize each letter carefully with all its standards. Almighty Allah Says in the Holy Book that “Read the Holy Qur’an without hurrying and generating the letters clear.” So, Learn Quran Online by joining Aiman Online Quran Academy.
    Learning Quran With Tajweed
    Learn Online Quran

    ReplyDelete