Canada’s largest energy stock continues to build on its strong position in Alberta’s oil sands.
The company recently paid over $900 million to increase its stake in one of the largest projects in the oil sands. It also expects to reach 90% capacity this year at another major project. Meantime, the company recently raised its dividend, which yields a solid 3.0%.
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SUNCOR ENERGY INC. (Toronto symbol SU; www.suncor.com) is Canada’s largest integrated oil company, with its major projects in the Alberta oil sands. It also owns four refineries (three in Canada and one in Colorado), along with 1,500 Petro-Canada gas stations.
Suncor recently increased its stake in the Syncrude oil sands project in northern Alberta, from 53.74% to 58.74%. It purchased that additional interest from Mocal Energy. The project’s other partners include Imperial Oil (25%), Sinopec Oil Sands Partnership (9.03%) and Nexen Oil Sands Partnership (7.23%).
The company paid $925 million for its additional stake. To put that price in context, Suncor’s market cap (the value of all outstanding shares) is $70.3 billion.
Due to a small operational problem at Syncrude, the company decided to move a scheduled maintenance project forward from April to mid-March. The work was due to take eight weeks to complete.
As a result, Syncrude’s production in the first quarter of 2018 will fall 1.5%, to 140,000 barrels a day from 142,100 barrels a year earlier.
However, the recent start-up of production at its Fort Hills oil sands project should help the company reach its full-year production target of 685,000 barrels a day.
Suncor owns 53.06% of Fort Hills and operates the project. The other investors are France’s Total SA (26.05%) and Teck Resources, Toronto symbol TECK.B (20.89%).
Fort Hills will eventually produce up to 194,000 barrels a day. Suncor expects the project will reach 90% of that capacity by the end of 2018. Its share of the output will be 103,000 barrels a day. That’s 14% of the total 760,000 barrels a day Suncor expects to produce for 2018.
Energy stocks: New Fort McMurray project would begin before current operation shuts down
The company has also applied for permission to build a new oil sands project north of Fort McMurray. Called Lewis, it would produce 160,000 barrels a day. To put that in context, Suncor produced an average of 736,400 barrels of oil equivalent (including natural gas) a day in the fourth quarter of 2017.
Lewis would cost $6.2 billion. That’s equal to 9% of Suncor’s $69.9 billion market cap (the total value of all outstanding shares). If approved, construction could begin in 2024, with commercial production starting in 2027.
This new project would help replace the company’s main operation north of Fort McMurray, which will begin winding down around 2030.
The company plans to purchase 150 self-driving trucks to work at its oil sands projects in Alberta. That follows a successful test of nine trucks at its North Steepbank project.
Self-driving trucks can operate continuously, only stopping to refuel. As well, they operate on fixed, private roads, which reduces the risk of collisions.
As a result of this move, the company will cut 400 jobs (about 3% of its workforce) over the next six years.
With the March 2018 payment, Suncor raised its quarterly dividend by 12.5%. Investors now receive $0.36 a share, up from $0.32. The new annual rate of $1.44 yields 3.3%. The company has now increased its dividend each year for the past 16 years. Suncor’s dividend has grown an average of 22.6% annually over the last 5 years.
In 2017, Suncor also spent $1.4 billion on share buybacks. This year, it aims to repurchase up to $2.0 billion of its shares.
Recommendation in The Successful Investor: Suncor is a buy.
Thanks for sending this article by e-mail. It is very informative. Unfortunately, I think our Federal Govt would like to kill the Oilsands. Their very limp dealing with Kinder Morgan pipeline expansion is scary.
The recent news that Enbridge and possibly TCP may move to the USA is a serious worry for me.
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Thanks for sending this article by e-mail. It is very informative. Unfortunately, I think our Federal Govt would like to kill the Oilsands. Their very limp dealing with Kinder Morgan pipeline expansion is scary.
The recent news that Enbridge and possibly TCP may move to the USA is a serious worry for me.