What Does Suncor’s Sale Mean for the Future of Natural Gas?

The big guys are pulling back from natural gas. Be mindful if you’re thinking about rushing in.

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Somewhat lost in the shuffle of yesterday’s chaotic sell-off of all-things commodity was Suncor Energy’s (TSX:SU,NYSE:SU) announcement that it has sold its conventional natural gas assets in the Western Canadian Sedimentary Basin for $1 billion.  The buyer is British company Centrica, which controls gas distributor Direct Energy here in Canada, and Qatar Petroleum.  They have split the ownership of the assets 60/40%.

It’s unknown what Suncor has planned for the proceeds from this sale.  Growth oriented projects, share buybacks and/or an increased dividend have all gained traction in the media.

Not the only one that wants out of gas

Suncor’s move follows a similar announcement that peer Canadian Natural Resources (TSX:CNQ,NYSE:CNQ) made about a month ago.  CNQ indicated that it had put a quarter of its unconventional Montney natural gas assets on the block.  This move had analysts scratching their heads as selling assets is not something that CNQ has typically done.

These moves imply that neither firm thinks the long-term prospects of being a North American natural gas producer are very good.  Supply is plentiful and the price of the commodity has doubled over the past year.  One has to assume that neither company thinks the price can go much higher.  Both are seeking to monetize the gains that have occurred and go forward with a more “oily” collection of assets.  Simple as that.

Foolish Takeaway

Suncor and CNQ have by default made the decision to bump their respective exposure to oil by embarking on these transactions.  Clearly, the powers that be at both firms envision a brighter future for this commodity vs. its potentially over-supplied peer.  Keep this in mind if you’re looking to up your exposure to the natural gas space.

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Fool contributor Iain Butler is does not own shares in any of the companies mentioned at this time.  The Motley Fool does not own any of the stocks mentioned. 

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.

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