Should You Hold Suncor Energy (SU) Amid Low Oil Prices?
We issued an updated research report on Suncor Energy Inc. SU on Apr 6, 2016. Suncor is one of the best positioned companies in the energy space given its access to abundant resources, its rich operating experience and its technical know-how. However, plunging oil prices since Aug 2014 has been affecting the upstream operations of Suncor.
This balanced view is reflected in the company’s current Zacks Rank #3 (Hold), implying that the stock will perform in line with the broader U.S. equity market over the next one to three months.
Suncor has significant oil sands and conventional production platforms, huge long-lived oil-sands reserves and an impressive downstream portfolio. The company’s asset base includes substantial conventional reserves and production offshore Eastern Canada and in the North Sea. These generate strong margins and should provide free cash flow to fund future oil sands expansion. Also, Suncor has acquired additional working interest in the Fort Hills oil sands project from TOTAL. The addition is expected to further increase long-term growth opportunities for the company.
Following the Petro-Canada acquisition, Suncor has become one of the largest owners of oil sands in the world. The company has gained new oil sands properties to supplement its existing operations in northern Alberta, making it the dominant producer in the region where reserves are second only to Saudi Arabia. The oil sands assets of the ‘new’ Suncor promises years of production growth as prices strengthen from the recession-driven lows and conventional reserves become harder to find.
However, Suncor Energy’s major focus is on the production of crude from the Alberta oil sands. This is a high-risk strategy considering the extra costs associated with the extraction of oil from oil sands compared to production from conventional oil wells. On top of that, with crude prices in a free fall, Suncor Energy’s upstream division has been able to extract less value for its products. This has stressed the group’s profit margins.
Stocks to Consider
Some better-ranked players in the energy space are Antero Resources Corporation AR, PetroChina Co. Ltd. PTR and Vanguard Natural Resources LLC VNR. Each of these stocks sports a Zacks Rank #1 (Strong Buy).
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SUNCOR ENERGY (SU): Free Stock Analysis Report
PETROCHINA ADR (PTR): Free Stock Analysis Report
VANGUARD NATURL (VNR): Free Stock Analysis Report
ANTERO RESOURCE (AR): Free Stock Analysis Report
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