Why Suncor Energy Inc. Remains the Best of Canada’s Oil Patch

Suncor Energy Inc. (TSX:SU)(NYSE:SU) has some of the lowest production costs, best margins, and most robust long-term fundamentals among its peers in the Canadian oil patch, making this a company every investor should consider in today’s strengthening commodity price environment.

| More on:
The Motley Fool

With oil continuing to rise, posting what appears to be the most significant bid for a full rebound in Canada’s most watched commodity market, investors are now beginning to assess which value plays within the Canadian oil patch offer the greatest upside in what may not be a “lower for longer” status quo in the oil patch much longer.

While many firms have seen valuations increase in lockstep with the recently rising price of oil, few have seen the stability of companies such as Suncor Energy Inc. (TSX:SU)(NYSE:SU) in recent years. Holding relatively steady through the recent bear market in oil, Suncor’s share price has maintained its robust nature as the leader in Canada’s oil production industry, producing increasingly bullish results, despite continuing to invest heavily in its infrastructure and long-term margin-enhancing opportunities available to only a few of the country’s largest producers.

Suncor recently reported Q3 2017 results, which surprised the market in a good way. The producer increased its upstream production numbers to record levels, producing nearly 8% more oil on a year-to-date basis, while reducing its cash operating costs for its oil sands operations to below $22 per barrel — numbers which allow the oil producer to continue earning steady profits, despite a strengthening Canadian dollar and other headwinds relating to a supply glut, which has (only very slowly) begun to diminish on robust global demand.

Nearly tripling the company’s quarterly earnings on a year-over-year basis, short-term sentiment indeed remains strong for prospective Suncor shareholders. What I think should be the biggest driver of the company’s share price over the medium to long term, however, are the company’s excellent margins in an industry plagued by profitability and high debt loads.

Suncor remains Canada’s premier producer in terms of operational breakeven cash costs in an oil sands industry with relatively high breakeven values. Comparing Suncor’s approximately $37 breakeven cost for the company’s oil sands operations with other competitors in the industry (larger competitors average between $40 and $60 per barrel), should oil maintain an average price above $50 per barrel for an extended period of time, Suncor’s production mix may suddenly become the envy of Canadian investors, spurring additional long-term investment from those who believe the rebound is only beginning.

With a dividend of nearly 3%, Suncor rewards investors willing to buy and hold steady for the long term. Despite long-term headwinds to the Canadian oil patch, many investors (including myself) continue to advocate as a reason for caution, holding Suncor as part of a well-diversified portfolio remains a solid proposition today.

Stay Foolish, my friends.

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 Chris MacDonald has no position in any stocks mentioned in this article.

More on Energy Stocks

A worker overlooks an oil refinery plant.
Energy Stocks

Canadian Energy Stocks: Suncor Stock vs. Cenovus Stock

These two energy stocks are top options for investors wanting income that pays now and in the future, but which…

Read more »

hand stacks coins
Energy Stocks

3 Premium TSX Dividend Stocks Worth Loading Up On

Here are three premium Canadian dividend stocks I think long-term investors can safely own for the long term.

Read more »

Hourglass projecting a dollar sign as shadow
Energy Stocks

Where Will Suncor Energy Stock Be in 3 Years?

This energy company stock may be a value play based on its strong track record of navigating industry cycles and…

Read more »

chart reflected in eyeglass lenses
Energy Stocks

Is Battered Energy Stock Parex a Buy for Its 11% Yield?

Many energy stocks are still soaring or gliding after flying high, pushing down their yields. However, there is at least…

Read more »

Aerial view of a wind farm
Dividend Stocks

Billionaires Are Selling Enbridge Stock and Buying This TSX Stock Instead

Both of these energy stocks offer dividends, but does Enbridge stock still look like the best option?

Read more »

oil pump jack under night sky
Energy Stocks

9.3% Dividend Yield? Buy This Top-Notch Dividend Stock in Bulk!

A 9.3% dividend yield? That's pretty drool worthy, if you ask me. But what should investors first consider?

Read more »

Dam of hydroelectric power plant in Canadian Rockies
Energy Stocks

3 No-Brainer Energy Stocks to Buy Right Now for Less Than $100

These energy stocks are top choices for investors, and yet still offer diversification and income.

Read more »

Trans Alaska Pipeline with Autumn Colors
Energy Stocks

Outlook for TC Energy Stock in 2025

Besides its excellent track record of raising dividends for 25 consecutive years, TC Energy’s (TSX:TRP) expanding natural gas footprint across…

Read more »