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

Offshore wind turbine farm at sunset
Energy Stocks

Best Stock to Buy Right Now: Brookfield Renewable vs TransAlta Renewables?

These two energy stocks look primed to explode, and at these prices, investors would do well to pick them up…

Read more »

The sun sets behind a power source
Energy Stocks

Emera: Buy, Sell, or Hold in 2025?

Emera stock has had a fairly turbulent year, but does that mean investors should take this opportunity to buy or…

Read more »

Trans Alaska Pipeline with Autumn Colors
Energy Stocks

Outlook for Enbridge Stock in 2025

Enbridge stock has been in the limelight since the tariff war began, making risk-averse investors anxious. Here is what you…

Read more »

bulb idea thinking
Energy Stocks

Got $2,500? 3 Energy Stocks to Buy and Hold Forever

These three energy stocks would be ideal additions to your long-term portfolios, given their solid underlying businesses, stable cash flows,…

Read more »

Oil industry worker works in oilfield
Energy Stocks

Suncor Energy: Buy, Sell, or Hold in 2025?

Suncor stock has seen quite the turnaround in recent years, but will it keep the momentum up?

Read more »

how to save money
Energy Stocks

Here’s How Many Shares of Enbridge You Should Own to Get $2,000 in Yearly Dividends

Looking to establish some yearly dividends? Enbridge (TSX:ENB) can handily provide you with $2,000 or more in annual income.

Read more »

A worker overlooks an oil refinery plant.
Energy Stocks

3 No-Brainer Energy Stocks to Buy With $1,000 Right Now

These Canadian energy companies will generate strong profits and reward investors with high and reliable dividend payouts.

Read more »

Engineers walk through a facility.
Energy Stocks

1 Practically Perfect Canadian Stock Down 32% to Buy Now and Hold for Life!

Cameco stock may be down, but certainly don't count it out, especially with production rising higher.

Read more »