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Suncor Energy Inc. vs. Canadian Natural Resources Ltd.: Which Is the Best Investment?

Recent weakness in the price of oil is giving investors an opportunity to buy Canadian energy stocks at very attractive levels.

Suncor Energy Inc. (TSX: SU)(NYSE: SU) and Canadian Natural Resources Limited (TSX: CNQ)(NYSE: CNQ) are both great companies. Let’s see which one is the best pick right now.

Suncor Energy Inc.

Canada’s largest integrated energy company offers investors a chance to profit from both the production of crude oil and the sale of its refined products.

At its oil sands operations, Suncor has 6.9 billion barrels of reserves and a massive 23.5 billion barrels of contingent resources. In the oil production business, the extensive reserve base is a fantastic competitive advantage because conventional oil and gas producers are always faced with the challenge of replenishing depleted resources.

Along with the oil production, Suncor also operates several refining facilities and more than 1,500 Petro-Canada retail and wholesale outlets.

On the marketing side, Suncor is very good at getting the highest price possible for every barrel of crude oil it produces. The company is taking advantage of the rapid growth of crude-by-rail transport and even ships its product by sea when price differentials justify the effort and expense.

Suncor now sends western Canadian crude to its refineries in Montreal instead of sourcing more expensive oil from overseas suppliers. In the second quarter, crude-by-rail shipments to Montreal hit a record 36,000 barrels per day.

To access higher-priced markets on the U.S. Gulf Coast, Suncor is transporting an additional 70,000 barrels per day using the Gulf Coast pipeline operated by TransCanada Corporation.

In its Q2 2014 earnings statement, Suncor reported it captured global-based pricing on nearly 100% of its production.

On the cost-management side, Suncor is extremely good at allocating resources efficiently. In the Q2 report, the company announced a $1 billion reduction in capital spending for 2014.

Shareholders continue to benefit from strong stewardship at the company. Suncor plans to buy back up to $1.1 billion in stock over the next 12 months and recently increased its dividend by 22%.

Suncor is trading at 16 times earnings, the dividend yields 2.7%, and the stock price has increased 7% in the past five years.

Canadian Natural Resources Limited

Canadian Natural Resources has a diversified asset portfolio that is the envy of the Canadian oil and gas sector.

The company owns extensive tracts of land in the relatively unexplored region of northeastern B.C. and northwestern Alberta. Canadian Natural is already one of the largest natural gas producers in western Canada and these assets position the company well to expand its natural gas liquids production.

Canadian Natural’s conventional oil assets are among the best in the country. Extensive land holdings located around its flagship Pelican Lake facility give the company the ability to minimize capital costs while pursuing aggressive drilling and development operations.

The oil sands operations are the third jewel in Canadian Natural’s crown. The company operates thermal in-situ properties as well as surface mining operations, including the world-class Horizon Oil Sands mining facility.

In the second quarter of 2014, Canadian natural reported excellent financial results. Increased production at Pelican Lake and Horizon provided the company with record earnings of $1.15 billion.

Shareholders are benefitting from management’s efficient use of capital. The dividend has more than doubled in the past two years and the company has an aggressive share buyback program.

Canadian Natural Resources trades at 14.7 times earnings, the dividend yields 2%, and the stock price has increased 21% in the past five years.

The bottom line

Both Suncor and Canadian Natural Resources are well-run companies with fantastic assets and excellent growth potential. Suncor’s integrated business model provides earnings diversification that helps when oil prices are weak. Canadian Natural gives investors great exposure to both gas and oil assets that are unmatched in the energy sector.

It’s pretty much a coin toss on these two companies, but Warren Buffett owns a significant position in Suncor, and we all know what his track record is.

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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 Andrew Walker has no position in any stocks mentioned.

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