This oil company is forecast to grow at a rate of 16.8% next year. The shares have a current annual dividend yield of 3.02%, paid quarterly.
Suncor Energy Inc. (SU.TO, SU)
From Income Investor
Suncor is one of the largest integrated oil companies in Canada and one of the top 10 in North America. It has operations in the oil sands in Western Canada, offshore Eastern Canada, the US, and the North Sea, some of which were acquired when it took over Petro Canada in 2014. It produced 695,000 barrels of oil per day (bpd) in 2020, and its refinery operations have a capacity of 466,000 bpd. It estimates it has 7.4 billion barrels of oil equivalent (boe) in proven and probable oil reserves.
Suncor’s funds from operations (FFO) increased to $2.36 billion ($1.57 per share) in the second quarter ended June 30, compared with $488 million ($0.32 per share) in the prior year quarter. Operating earnings were $722 million ($0.48 per share) compared with a loss of $1.35 billion ($0.88 per share) in the prior year. Net earnings were $868 million ($0.58 per share) compared with a loss of $614 million (-$0.40 per share) last year.
The company’s oil production averaged 699,700 boe/d during the quarter, compared with 655,000 boe/d in the prior year quarter as significant turnaround activities took place at its Syncrude and Buzzard refineries. Interestingly, Canadian oil and gasoline demand was estimated to be 13% below its pre-Covid levels in 2019 in the second quarter and has since improved to only 6% below 2019 levels in July and August as restrictions were gradually lifted.
Suncor and Cenovus announced in September that they had increased their stakes in the Terra Nova offshore oil field off Newfoundland to 48% and 34% respectively, with US-based Murphy Oil owning the remaining 18%. This happened after the provincial and federal governments agreed to inject $500 million into reopening the project, which closed for maintenance in 2019. The restarted project is estimated to create 1,000 jobs in Newfoundland, but $300 million came from a reduction in the province’s royalty, which will now total only $35 million over the expected 10-year life of the project, while $205 million came from a federal fund for the offshore industry. It’s funded by dividends from its 8.5% stake in the Hibernia offshore field. Terra Nova is estimated to produce 70 million boe over the next 20 years. Suncor CEO Mark Little said, “We appreciate the deep collaboration and support from the federal and provincial governments.”
Suncor pays a $0.21 quarterly dividend. This is after cutting its dividend by more than 50% during the oil price decline in 2020. It has repurchased 2.3% of its outstanding shares for $961 million at an average cost of $27.47 since February 2021.
With demand recovering, production increasing, and the additional resources from the Terra Nova acquisition, Suncor is well positioned to benefit from a combination of rising demand and rising oil prices. It remains a Buy.
Gavin Graham in Gordon Pape’s Income Investor, buildingwealth.ca, 1-888-287-8229, September 21, 2021