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

Group of industrial workers in a refinery - oil processing equipment and machinery
Energy Stocks

Canadian Oil Stocks Are Still Bullish

Suncor Energy Inc (TSX:SU)(NYSE:SU) stock has rallied this year. It may still have further to run.

Read more »

Utility companies can be good stock investments.
Energy Stocks

Time to Buy TransAlta Stock?

Shares of this utility are up significantly in the past year and more gains could be on the way.

Read more »

Natural gas prices are rising, making energy companies a good investment.
Energy Stocks

Bonterra Energy Stock Has Doubled: Is There More Upside in 2022?

It's been one of the best-performing TSX small-cap energy stocks in 2022, yet shares are cheap today.

Read more »

Group of industrial workers in a refinery - oil processing equipment and machinery
Energy Stocks

3 Small-Cap TSX Energy Stocks That Doubled This Year

TSX energy stocks at large have beat broader markets this year. But that's nothing compared to these small caps.

Read more »

Oil pumps against sunset
Energy Stocks

TFSA Wealth: Is Suncor Stock Still a Buy?

Suncor stock still looks cheap. Here's why.

Read more »

energy industry
Energy Stocks

1 Oil Company Just Increased Dividends by 12%

Dividend chasers should include an oil bellwether on their buy lists after the company declared the highest dividend increase in…

Read more »

oil tank at night
Energy Stocks

Oil Boom: This 6% Dividend Stock Could Go Higher

Dividend stocks like Enridge (TSX:ENB)(NYSE:ENB) could boost payouts this year.

Read more »

Canadian energy stocks are rising with oil prices
Energy Stocks

Income Investors: 3 Energy Stocks That Yield up to 6%

Income investors looking to combat volatility may want to target top dividend-yielding energy stocks like Enbridge Inc. (TSX:ENB)(NYSE:ENB).

Read more »