Could Suncor Energy Inc. Start Acquiring Now That Royal Dutch Shell PLC Has Made the First Move?

When times get bad, there’s always a lot of M&A activity in the oil industry. Could Suncor Energy Inc. (TSX:SU)(NYSE:SU) start buying other companies? Or could it get bought?

| More on:
The Motley Fool

The Wall Street Journal broke the news yesterday that Royal Dutch Shell PLC would be acquiring BG Group PLC for US$70 billion, which is a significant premium over the market cap of US$46 billion. This news is something I’ve been waiting to see in the oil industry for some time.

In the late 1990s, there was a slew of mergers and acquisitions (M&A) because oil prices had reached a low not seen since the 1970s. In 1998 Exxon Mobil Corp. came into existence when Exxon bought Mobil for US$85 billion.

The reason this happens is because oil companies see the potential in streamlining operations, increasing output, and finding targets that could be high performers in a better managed situation. That’s why I think that Suncor Energy Inc. (TSX:SU)(NYSE:SU) must have its eyes wide open for potential targets.

It’s one of the largest oil companies in Canada. It generates billions every year in revenue. And the only way for it to move the needle is to start launching new rigs—a bad idea right now—or to acquire smaller firms.

Now it’s difficult to pick the firms that could be targets, but you have to imagine they would be any company that is having severe financial difficulty. Suncor can swoop in, buy the company, get rid of unnecessary administration, and soon enough, Suncor will be pumping even more oil.

There’s still plenty of uncertainty ahead

The simple reality is that no one truly knows what’s going to happen in the oil industry. But if we take the 1990s as a history lesson, there’s going to be plenty of M&A movement. These types of acquisitions are common when the oil market is depressed.

But Suncor could also wind up being the seller, not the buyer. There are plenty of larger oil companies out there that could look to Suncor as a way of growing their business.

At the end of the day, here’s what I think you should do. If you own Suncor, hold it. It’s a relatively safe oil stock. If you don’t own any and you want to add an oil stock to your portfolio, consider buying it. It’s probably one of the safest oil stocks around simply because it is streamlined and has always built its business with the belief that oil would be priced where it is now.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Jacob Donnelly has no position in any stocks mentioned. The Motley Fool owns shares of ExxonMobil.

More on Energy Stocks

Arrowings ascending on a chalkboard
Energy Stocks

Beat the TSX With This Cash-Gushing Dividend Stock

Canadian Natural Resources stock is well set up to beat the TSX as it continues to generate strong cash flows…

Read more »

energy industry
Energy Stocks

2 TSX Energy Stocks to Buy Hand Over Fist Now

These two rallying TSX energy stocks can continue delivering robust returns to investors in the long term.

Read more »

green energy
Energy Stocks

1 Magnificent TSX Dividend Stock Down 37% to Buy and Hold Forever

This dividend stock has fallen significantly from poor results, but zoom in and there are some major improvements happening.

Read more »

oil tank at night
Energy Stocks

3 Energy Stocks Already Worth Your While

Here's why blue-chip TSX energy stocks such as Enbridge should be part of your equity portfolio in 2024.

Read more »

Solar panels and windmills
Energy Stocks

1 Beaten-Down Stock That Could Be the Best Bet in the TSX

This renewable energy stock could be one of the best buys you make this year, as the company starts to…

Read more »

Dice engraved with the words buy and sell
Energy Stocks

Is Enbridge Stock a Buy, Sell, or Hold?

Here's why Enbridge (TSX:ENB) remains a top dividend stock long-term investors may want to consider, despite current risks.

Read more »

Gas pipelines
Energy Stocks

If You Had Invested $5,000 in Enbridge Stock in 2018, This Is How Much You Would Have Today

Enbridge's high dividend yield hasn't made up for its dismal total returns.

Read more »

Bad apple with good apples
Energy Stocks

Avoid at All Costs: This Stock Is Portfolio Poison

A mid-cap stock commits to return more to shareholders, but some investors remember the suspension of dividends a few years…

Read more »