Is This the Opportunity Suncor Energy Inc. Has Been Waiting for?

Husky Energy Inc. (TSX:HSE) is reportedly seeking to sell assets right where Suncor Energy Inc. (TSX:SU)(NYSE:SU) has been hoping to buy.

| More on:
The Motley Fool

Last week, Reuters reported that Husky Energy Inc. (TSX:HSE) was considering the sale of some of its eastern Canadian offshore assets. The company reportedly believes these capital-intense assets are less attractive in the current oil price environment and would rather reinvest the capital in other opportunities. That said, one company that sees opportunity in the Canadian Atlantic is Suncor Energy Inc. (TSX:SU)(NYSE:SU), which has been on the lookout for deals in the region and would be the perfect buyer for these assets.

Drilling down into Husky’s Atlantic assets

Husky has been operating in the Canadian Atlantic since 2005. The crown jewel of its operations is the White Rose field and its satellite extensions North Amethyst, West White Rose, and South White Rose, where the company is the operator and majority owner. In addition, the company owns a 13% stake in the Terra Nova field, which is operated by Suncor. These assets produced 34,400 barrels of oil per day last quarter, which represented about 10% of its total output.

The company has been working to increase that production and recently finished a new well at the South White Rose extension which is currently producing about 3,000 barrels per day net to Husky. Further, the company has two more White Rose infill wells coming online this year with the first already online and producing 8,600 barrels per day for Husky. In addition, Husky is considering sanctioning the West White Rose extension project.

Husky has partnered with Norway’s Statoil ASA (ADR) (NYSE:STO) on several recent discoveries in the region, including Mizzen, Harpoon, and Bay du Nord. Husky holds a 35% interest in those fields, the largest of which is Bay du Nord at an estimated 600 million barrels of oil. Additional discoveries could be one the way because Husky plans to drill two more exploration wells with Statoil later this year. Needless to say, Husky controls a compelling position in a region which has ample current production and upside potential.

Why these assets would fit perfectly at Suncor

While Husky is thinking about reducing its exposure to the Canadian Atlantic, that’s one region where Suncor wants to bulk up. That’s because last year’s wildfires in the country’s western oil sands region hit the company hard given that more than 80% of its production comes from that area. That concentrated position has become somewhat of a liability because a more severe wildfire could do long-term damage to Suncor’s ability to produce, which is why it plans to mute that risk by boosting its exposure to other areas.

However, instead of adding a new region to its portfolio, Suncor said that it would rather make acquisitions to bulk up its two offshore portfolios in the North Sea and Canadian Atlantic. The company has already taken a stake in an offshore project in the North Sea. Meanwhile, Husky’s Canadian offshore assets would certainly fit Suncor’s desire to increase its exposure to that area.

Not only would the properties fit geographically, but they’d plug a strategic hole in Suncor’s growth pipeline because it doesn’t have many major growth projects once the Fort Hills oil sands mine and Hebron offshore field in the Canadian Atlantic come online next year.

As such, Suncor could plug in the West White Rose extension project or the potential development of the Bay du Nord field into its long-range plans. These projects would help Suncor keep its growth train rolling over the long term, especially since its most recent exploration efforts in the Canadian Atlantic came up dry.

Investor takeaway

Suncor needs to diversify away from western Canada and plug new projects into its pipeline to mitigate risk and continue growing. Given its previously stated desire to bolster its offshore portfolio in eastern Canada, it would appear that Husky’s assets in the region are a perfect strategic fit.

While there is no guarantee that a deal between these two companies will happen, it is a story line that investors should keep an eye on because it represents a potential needle-moving opportunity for Suncor.

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 Matt DiLallo has no position in any stocks mentioned.

More on Energy Stocks

little girl in pilot costume playing and dreaming of flying over the sky
Energy Stocks

The U.S. Stocks Every Canadian Investor Needs to Know About

Boeing, UGI Corporation, and Exxon Mobil are three U.S. stocks I'd buy today.

Read more »

Silhouette of businessman sit on chair and hold a cigar and looking at the city in night.
Energy Stocks

Passive Income: How to Make $104 Per Month Tax Free in 20 Years

By simply choosing the right stock, and investing in it on a consistent basis, you can create massive passive income…

Read more »

A worker overlooks an oil refinery plant.
Energy Stocks

Where to Invest in Oil Stocks in June 2023

Suncor Energy is a Canadian oil stock that's set up to benefit from strong oil prices, as it trades at…

Read more »

edit Sale sign, value, discount
Energy Stocks

Buy Alert: Major Canadian Energy Stocks Are on Sale in June 2023 

Did you hear of a June sale? Well, Canadian energy stocks are trading near their lows in June 2023. It's…

Read more »

Dollar symbol and Canadian flag on keyboard
Energy Stocks

Canadian Blue-Chip Stocks: The Best of the Best for June 2023

TSX blue-chip stocks such as Enbridge can help you generate steady gains and benefit from a high dividend yield in…

Read more »

oil and gas pipeline
Energy Stocks

Pipeline to Prosperity: Invest in Enbridge Stock and TC Energy

Canadian pipeline stocks are buy-and-hold stocks, as oil and gas exports significantly contribute to Canada's GDP.

Read more »

tsx today
Energy Stocks

TSX Today: What to Watch for in Stocks on Monday, June 5

An early morning rally in oil prices could lift TSX energy stocks at the open today.

Read more »

oil and natural gas
Energy Stocks

These Canadian Energy Stocks Are Bargain Buys for 2023

Here are two of the best Canadian energy stocks you can buy on the dip in 2023 to hold for…

Read more »