Morningstar | Production Cuts Hampers Syncrude and Fort Hills Ramp-Up
Suncor Energy is one of Canada’s leading integrated energy companies, focusing on crude oil production, refining and upgrading operations, and the marketing of petroleum products. Upstream operations are primarily focused on the development and production of the Athabasca oil sands and are supplemented with conventional crude oil that provides Suncor with access to higher world pricing. Suncor’s integrated operations help to mitigate market volatility and capture refined product pricing for the company’s crude production. However, high sustaining capital requirements result in unfavorable cost structures when compared with peers.Like peers, Suncor faces an uphill struggle coping with lower oil prices. Suncor began its Hebron and Fort Hills expansion projects before the downturn in the oil price environment, and it is continuing the projects despite the unfavorable economics. Depressed realized prices have stalled the growth potential of Suncor’s additional oil sands assets, as proposed expansion projects still require high levels of capital spending. However, we expect the company’s pilot program with Nsolv to result in future expansion at its Meadow Creek project, although commercial implantation isn’t expected until the mid-2020s. Additionally, the recent downturn in oil prices provided Suncor with acquisition opportunities that increased its stake in Syncrude at a fraction of what it would cost to undertake an expansion project. In the current environment, leverage remains reasonable and is attributed to Suncor’s integrated operations. The company’s future oil sands projects could drive significant growth in a better oil-price environment. However, these projects aren’t economical until solvent technology is implemented, limiting their upside. Suncor is at a disadvantage to peers, who are proceeding with solvent-assisted technology in the next phase of growth projects. Therefore, we believe the stock continues to trade in 3-star territory based on its current prospects and future solvent-based technology growth opportunities.Suncor Energy is an energy company. Co.'s operations include oil sands development and upgrading, onshore and offshore oil and gas production, petroleum refining, and product marketing under the Petro-Canada brand. Co.'s segments include: oil sands, which develop and produce synthetic crude oil and related products through the recovery and upgrading of bitumen; exploration and production, which include offshore activity, and the exploration and production of crude oil, natural gas, and natural gas liquids; and refining and marketing, which include the refining of crude oil products, and the distribution and marketing of these and other purchased products, as well as a lubricants plant.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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