Suncor Energy Inc. (TSX:SU)(NYSE:SU) finally completed the mega deal for Canadian Oil Sands Ltd. last month, which will finally give Suncor the leading share of the Syncrude project.
The Syncrude project is a 50-year joint venture between a number of large oil companies. Collectively, the project has a capacity of 350,000 barrels per day, roughly 13% of Canada’s consumption.
The potential output from the Syncrude project could push past current levels in the years ahead, which analysts note may be a reason for Suncor to pursue buying out a portion of one of the other five remaining partners in the project.
One possible candidate from the Syncrude project could be Murphy Oil Corporation. Murphy only has a 5% stake in the venture, and it’s not considered to be a core strategic asset by the company.
Suncor is also co-owners with Total E&P Canada Ltd. and Teck Resources Ltd. in the Fort Hills project. Total has 29.2% ownership, and Teck has a 20% interest. Fort Hills, which is in a remote region north of Fort McMurray, is widely regarded as one of the largest undeveloped oil sands assets in the region.
Suncor already acquired a part of Total’s share last year. With that addition, Suncor has a near 51% stake in the operation, which is slated to be completely operational by 2017, when output will be set to 180,000 barrels per day.
Suncor’s view is that if the opportunity arises and the price is right, the company would be more than interested in pursuing a larger share of Fort Hills.
The road ahead for Suncor
Suncor is already the largest integrated company by market cap and has fared much better than many competitors over the past few years while oil prices have crashed. The company is still working on upping production. It’s set a target of 800,000 barrels per day to be achieved by 2020, an increase over the 575,000 barrels per day pumped last year.
Beyond that, the company has potentially another 400,000 barrels per day potential in SAGD (steam assisted gravity drainage) reservoirs. Suncor has intentionally delayed the development of these reservoirs, opting to only have one major construction site active at a time (currently, the focus is the Fort Hills project).
This reserved approach in an uncertain market has allowed Suncor to amass a significant war chest for the company to complete the deals needed, such as the Canadian Oil Sands acquisition.
Purchasing competitors during downturns in the economy, integrating those assets into its already efficient operation stream, and waiting for the revenues (and oil price appreciation) to start flowing in have worked miraculously for Suncor thus far, and there’s no reason why the process can’t continue.
Regardless of what further assets (if any) that Suncor acquires, the company remains a great addition to any portfolio and can be purchased for a discount at only just over $36.