Suncor Energy Enjoying Booming Oil

Booming oil price is good for buy-recommended Suncor (SU) with its 91% concentration by value on the liquid commodity and its multibillion dollar investment program to develop new supply in Canadian oil sands. Net present value [NPV] of US$122 a share estimated on the basis of a long-term oil price of $80 a barrel oil seems likely to increase considering the latest quote is almost $120 a barrel.

First quarter results released today met our expectations from three months ago for cash flow and earnings. New capacity starts taking volume up toward 350,000 barrels daily in the second half, contributing to a high level of unlevered cash flow (Ebitda). Before the next adjustment for higher long-term oil and gas price expectations, NPV is supported by projected cash flow capitalized at unlevered multiples (PV/Ebitda) related to reserve life (Adjusted R/P).

At the same time, to control the risk of unexpected negative surprise, investors can limit the size of an SU position. We carry the stock as part of an unlevered weight of 50% for oil production in the illustrative McDep Energy Portfolio of 27 buy recommendations.

Originally published on April 24, 2008.

Comments

[jjason:]

Kurt,

What do you think will be the effect if the US Congress is able to put an end to the worldwide oil cartel/monopoly called OPEC?

Also, the public is finally fed up with speculators driving up the price of oil and other commodities and there are members of the Senate and House who are attempting to do something about it ( like closing the ENRON LOOPHOLE.) Will these events cause oil prices to drop to $65.00 per barrel? And will $65.00 per barrel oil affect profits at Suncor?

In the past week all the Canadian firms in the O&G industry were at or near 52 week highs and have started to fall. It seems to me that some of these Canadian firms may be way overpriced at this time.

2008 May 28 05:19 AM