p>SUNCOR ENERGY INC. $43 (Toronto symbol SU; Conservative Growth Portfolio, Resources sector; Shares outstanding: 1.5 billion; Market cap: $64.5 billion; Price-to-sales ratio: 1.5; Dividend yield: 2.1%; TSINetwork Rating: Average; www.suncor.com) is Canada’s largest integrated oil company by market cap (or the value of all its outstanding shares).

Suncor gets 40% of its revenue and 65% of its earnings from producing crude oil and natural gas. Its 7.7 billion barrels of proven and probable reserves should last 35 years, based on current production rates.

The oil sands account for 70% of the company’s output. It also operates offshore platforms in Atlantic Canada and the North Sea, as well as conventional wells in Libya. However, political unrest has shut down some of Libya’s ports, limiting Suncor’s crude exports from the country.

The remaining 60% of Suncor’s revenue and 35% of its earnings come from its four oil refineries (Edmonton; Montreal; Sarnia, Ontario; and Commerce City, Colorado) and 1,500 gas stations, which operate under the Petro-Canada banner.

Thanks to its 2009 merger with rival oil company Petro-Canada, Suncor’s revenue jumped 52.2%, from $25.5 billion in 2009 to $38.8 billion in 2011. Lower oil prices cut the company’s revenue to $38.5 billion in 2012.

In 2013, Suncor sold a big part of its Western Canadian natural gas operations for $1 billion. However, higher oil prices offset the lower production, and its revenue rose to $40.3 billion.

Earnings soared 408.9%, from $1.1 billion in 2009 to $5.7 billion in 2011. Petro-Canada investors exchanged each of their shares for 1.28 shares of Suncor. Due to the extra shares outstanding, per-share earnings rose at a slower rate of 288.2%, from $0.93 to $3.61. Earnings then fell to $4.7 billion, or $3.13 a share, in 2013, mainly due to higher operating costs as it expanded its oil sands projects.

Cash flow per share jumped 169.2%, from $2.34 in 2009 to $6.30 in 2012, but fell to $6.27 in 2013.

Streamlining existing projects

The company plans to spend $7.8 billion to upgrade and expand its operations in 2014, up 14.7% from $6.8 billion in 2013. It will use most of this cash to make its oil sands operations more reliable and efficient.

These moves should let Suncor reach its goal of producing 500,000 barrels a day from the oil sands by the end of 2017. To put that in context, its daily oil sands output was 424,400 barrels in the first quarter of 2014. Overall, it produced an average of 545,300 barrels (99% oil and 1% gas).

As well, Suncor recently began developing its Fort Hills oil sands project in northern Alberta. The company owns 40.8% of Fort Hills and will operate it; France’s Total SA holds 39.2%, while Teck Resources owns the remaining 20.0%. Fort Hills’ reserves should last 50 years.

The company will contribute $5.5 billion to Fort Hills’ $13.5-billion cost. The project should start up in late 2017 and will ultimately produce 180,000 barrels a day; Suncor’s share is 73,440 barrels.

Refineries play a key role

Meanwhile, Suncor continues to benefit from recent upgrades to its refineries. Even though it had to shut down some of these facilities for maintenance and unplanned outages, they operated at a high 94% of capacity in 2013.

In addition, its refineries in Sarnia and Montreal should benefit as proposed new pipelines give them greater access to Western Canadian crude. Up till now, they had to use higher-priced imported oil.

As well, the U.S. recently relaxed its restrictions on oil exports. As a result, Suncor’s Montreal refinery is now importing cheaper American crude by rail. Suncor expects this facility to get all of its oil from North America by 2015.

Suncor’s improving refinery performance also cuts its overall risk. That’s because these operations buy most of the oil they need from suppliers other than Suncor, so better efficiency means they can handle an uptick in oil prices. Refinery margins will also expand if oil prices fall, and offset the negative impact on Suncor’s oil producing businesses.

The company’s balance sheet is strong. As of March 31, 2014, its long-term debt was $10.5 billion, or just 16% of its market cap. Moreover, most these loans are due after 2018, which frees up cash that it can use for other purposes.

For example, since the start of 2013, Suncor has spent $2.1 billion on share repurchases. Under its new authorization, it can buy back an additional $1.4 billion worth of shares by August 4, 2014. It has also raised its dividend twice in the past year. The new annual rate of $0.92 yields 2.1%.

Low multiples for an oil sands leader

The stock trades at 11.7 times Suncor’s likely 2014 earnings of $3.69 a share and 5.8 times its projected cash flow of $7.44 a share. These are low multiples in light of Suncor’s high-quality reserves and the potential of the Fort Hills oil sands project.

Suncor is a buy.