Investors are searching for top stocks to add to their portfolios for the coming year.
Suncor reported Q3 2017 operating earnings of $867 million compared to $346 million in the same period last year.
Improved benchmark crack spreads and crude pricing combined with record oil sands production and record refinery throughput to generate the significantly stronger numbers.
Oil sands production came in at 469,300 barrels per day (bbls/d) at cash operating costs of $21.60 per barrel compared to output of 433,700 bbls/d at cash operating costs of $22.15 per barrel in the third quarter last year.
The company is set to see production jump in 2018, as the Fort Hills and Hebron projects shift from development to production.
Management bought back $282 million in stock for cancellation during Q3, bringing the 2017 total to $578 million.
Overall, Suncor had a strong third quarter and is set to book 2017 as a solid year.
WTI oil is holding its recent gains near US$57 per barrel, which is significantly better than the US$43 the commodity fetched in June. Western Canadian Select (WCS), however, isn’t faring as well.
The gap in the price received by Canadian oil sands producers relative to WTI recently hit US$25 per barrel due to pipeline bottlenecks and rising output.
The average differential is expected to be US$15.50 in 2018 and US$17.50 in 2019, according to a research report released by RBC Dominion Securities. This would be higher than the average differentials in the past two years.
New pipeline capacity could come online by 2020, which would help close the gap.
Suncor is primarily known as an oil sands producer, but the company also owns large refineries and more than 1,500 Petro-Canada retail stations.
These downstream assets provide a nice hedge against tough times in the production operations and are a big reason Suncor’s stock price has held up so well through the oil rout.
Suncor isn’t known as a top dividend pick, but the company raises the payout on a regular basis and currently provides a respectable 2.9% yield.
With Fort Hills and Hebron shifting to production, more cash flow should be available for dividend hikes in 2018 and beyond.
Should you buy?
You have to be an oil bull to own any of the producers. If you fall in that camp, Suncor is a reasonably safe way to get exposure to the sector.
The company is delivering strong results, despite the challenging situation in the oil market. Assuming Keystone XL and/or the Trans Mountain Expansion get built, WCS prices should improve, which would be good news for Suncor and its shareholders in the coming years.
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Fool contributor Andrew Walker has no position in any stock mentioned.