By Robert M. Cutler of Oilprice.com
The Canadian energy company Suncor Energy has been struggling since hitting a high of 74 five years ago. It is now trading in the high 20s (in U.S. dollars: symbol SU on the New York Stock Exchange; dividend yield 1.9%) after falling from its most recent high of 34.50 two months ago. It is set to release its first-quarter financial results early this coming Monday morning, after its fourth-quarter results last year were judged to be disappointing when it posted decreased revenue compared to the fourth quarter of 2011. An integrated energy company, Suncor markets products under the Petro-Canada brand. Together with its subsidiaries it develops and upgrades oil sands as well as conventional and offshore oil and gas, and also runs petroleum refining operations.
Company shares suffered after a fourth-quarter loss was posted in February and a $1.5-billion investment in an oil sands project upgrade was written off. They recovered a bit following last week's announcement of a sale of its conventional natural gas and crude oil business in Western Canada (estimated production 42,0000 barrels of oil per day equivalent, of which 90% gas) for $1 billion to a partnership comprising the U.K. company Centrica and Qatar Petroleum International, subject to Canadian government regulatory approval.
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This move helps to streamline the company's profile and makes strategic sense although some critics question the timing and price of the sale. Continuing assets still include important conventional reserves and production in the offshore from Eastern Canada as well as in the North Sea. These assets should generate good cash flow for expanding oil sands operations in the future. Despite a generally good financial situation, including respectable debt and valuation levels, the company's earnings per share have been weak as net income and return on equity have disappointed investors. At present, analysts expect Suncor Energy to track the broader U.S. market over the next quarter, but Bloomberg data reveals overwhelming buy sentiment among specialists with targets ranging from 36 to 48 per share.
Over the longer term, the chart suggests a failure to break out to the upside from convergent triangle dating from the May 2008 high and the following November 2008 low. However, it has been holding above a long-term support just under 28, thus forming a descending triangle. (Next-lower supports kick in just above 27 and just above 24, of which the former was confirmed earlier this month.) Medium-term technical indicators suggest that shares may be due to confirm this reversal to the upside, giving it the momentum to challenge the short-term descending-tops trend line where it finds itself today and even the static short-term upside resistance at 31. Above 29.50 it will have penetrated a medium-term descending-tops downtrend. There is static medium-term resistance around 34 that coincides with another long-term descending-tops downtrend. This probably accounts for the $36 analyst estimate. If the shares make it through that barrier, then $48 is feasible, of course depending on the market level of energy prices themselves.