We continue to advise against overindulging in oil stocks. That’s because the Resource sector (including oil) is highly volatile, and no one can accurately predict future oil prices.
For instance, after rising to $115 U.S. a barrel, oil dropped 16% in the first week of May 2011, to $97 U.S., on fears that the global economic recovery may be stalling. That’s why investors should stick with well-established oil stocks with high-quality reserves and rising production.
Oil stocks: Suncor is Canada’s largest integrated-oil company
We’ve published a special analysis of three Canadian oil stocks in the latest issue of The Successful Investor. One of those companies is Suncor Energy Inc. (symbol SU on Toronto). The stock has risen 27.2% for us in the last year.
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Suncor merged with Petro-Canada in August 2009 to become Canada’s largest integrated-oil company.
The company recently formed a joint venture with French oil company Total S.A., to develop two projects in the Alberta oil sands. Under the terms of the deal, Suncor acquired 36.75% of Total’s Joslyn oil-sands project, which should begin operating in 2017.
In exchange, Total received 49% of Suncor’s Voyageur facility, which converts tar-like bitumen from the oil sands into synthetic crude oil. Total also got part of Suncor’s stake in the Fort Hills oil-sands project.
Suncor now owns 40.8% of Fort Hills, and Total owns 39.2%; Teck Resources Ltd. (Toronto symbol TCK.B) owns the remaining 20%. Both Voyageur and Fort Hills should begin operating in 2016.
Higher production and prices boosted this oil stock’s latest earnings
Suncor continues to benefit from rising oil prices. In the three months ended March 31, 2011, the oil stock’s earnings rose 32.0%, to $1.0 billion, or $0.65 a share. A year earlier, it earned $779 million, or $0.50 a share. If you exclude unusual items, such as gains and losses on asset sales, Suncor’s earnings per share jumped 291.7%, to $0.94 from $0.24.
The company produced an average of 601,300 barrels of oil equivalent (including natural gas) per day in the latest quarter, up 6.5% from 564,600 a year earlier. Crude oil accounted for 87% of Suncor’s first-quarter production, up from 77% a year earlier.
This oil stock’s focus on the oil sands brings big potential—and risk
Canada’s reserves of oil sands are vast. However, extracting oil from oil sands is hugely expensive. Oil sands projects typically run way over budget. That adds to the risk of construction delays and problems.
As well, Canada’s oil sands still face strong opposition from environmentalists. However, new technology has sharply lowered the oil sands’ greenhouse-gas emissions. Moreover, the new Conservative majority government has promised not to impose onerous new carbon taxes or environmental regulations on oil-sands operators.
As we mentioned, Suncor has risen 27.2% for us in the past year. In the latest Successful Investor, we look to see if it has the potential to go even higher.
You can get our special analysis, including our clear buy/sell/hold advice, on Suncor and two other oil stocks in the latest Successful Investor. What’s more, you can get this issue absolutely free when you subscribe today. Click here to learn how.
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