Topic: Dividend Stocks

Petro-Canada – former Toronto symbol PCA

June 22, 2023|by Pat McKeough

Petro-Canada was Canada’s second largest integrated oil company. Its production centred on Western Canada before its sale to Suncor.

What is the relationship between Petro-Canada and Suncor?

PETRO-CANADA was acquired by rival Suncor Energy Inc. (Toronto symbol SU) in August 2009.

Under the terms of the deal, Petro-Canada shareholders received 1.28 common shares of Suncor for each share they held, while Suncor investors got one share of the new company for each Suncor share they held. Petro-Canada shareholders ended up with about 40% of the combined company, which is now Canada’s largest integrated oil company in terms of market cap.

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As part of the deal, Suncor uses the Petro-Canada banner for its more than 1,875 retail gas stations.

Meantime, Suncor started up its Fort Hills oil sands development in Northern Alberta in 2018.

Suncor recently agreed to buy Teck’s 21.3% stake in Fort Hills.

That will increase its stake in Fort Hills to 75.4%. France’s TotalEnergies holds the remaining 24.6% but plans to spin off its Canadian oil sands assets, including Fort Hills, as a separate company that will trade on the Toronto Stock Exchange. It aims to complete the spinoff in mid-2023.

Suncor paid $1 billion for Teck’s stake. It will also write down its existing 54.1% interest by $2.6 billion.

Fort Hills has the capacity to produce 180,000 barrels a day–although that fell in 2020 as the COVID-19 pandemic slowed global oil demand. However, Suncor restarted idled production at Fort Hills in the third quarter of 2020 and has now restored that lost output.

The stock now trades at a low 11.8 times the $4.14 a share that Suncor will probably earn in 2022.

Suncor’s dividend has now increased by an average 8.0% annually over the last 5 years. It yields 3.9%.

Suncor is a buy.

What is the outlook on Canadian oil companies?

Global demand for oil remains robust, especially in developing countries, though prices can be volatile due to factors such as production decisions by OPEC plus, geopolitical events, and potential economic slowdowns. Canada holds significant oil sands reserves, and while production costs have historically been higher, new technologies have helped reduce expenses. Pipeline expansions, including the Trans Mountain project, are expected to improve export capacity and narrow the discount at which Canadian oil is sold, which could benefit producers’ bottom lines.

Investors are paying closer attention to environmental, social, and governance considerations, and Canada’s stricter environmental regulations, including carbon pricing, have added costs for producers. In response, many companies are investing in carbon capture and cleaner technologies to reduce emissions. At the same time, these companies are exercising greater capital discipline by focusing on reducing debt, returning capital to shareholders through dividends and buybacks, and, in some cases, consolidating to gain efficiency.

While the global shift toward renewable energy is accelerating, oil and gas will likely remain essential in the near to medium term. Over the long run, companies that significantly lower their environmental impact, and possibly diversify into emerging energy solutions such as hydrogen or biofuels, are likely to be better positioned. If oil prices stay supportive and pipeline constraints ease, Canadian producers may see stable returns in the short term, but the ability to adapt to evolving industry trends and policies will be crucial for sustained success.

This article was originally published in 2009 and is regularly updated.