Taking into account
Suncor Energy Inc
) operational and cost issues, we have recalibrated our investment
thesis on the energy explorer to Underperform from Neutral.
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Calgary, Alberta-based Suncor is Canada's premier integrated energy
company. Suncor's operations include oil sands development and
upgrading, conventional and offshore crude oil and gas production,
petroleum refining, and product marketing under the Petro-Canada
Following the Petro-Canada acquisition last year, Suncor has become
one of the largest owners of oil sands in the world - worth as much
as 22 billion barrels. One of the largest publicly-traded energy
outfits in Canada along with the likes of
Canadian Natural Resources Ltd.
), etc., the company has gained new oil sands properties to
supplement its existing operations in northern Alberta, making it
the dominant producer in the region where reserves are second only
to Saudi Arabia.
Additionally, Suncor explores, acquires, develops, produces and
markets crude oil and natural gas in Canada and internationally,
and it transports and refines crude oil and market petroleum and
petrochemical products primarily in Canada.
Our pessimistic outlook on Canada's biggest energy firm is fueled
by the ongoing suspension of its Syrian operations and high
production costs. Post Petro-Canada acquisition, we also remain
worried about Suncor's elevated debt level and significant
anticipated capital expenditure requirements. Further, there is
execution risk associated with the integration of Petro-Canada's
predominately conventional assets, of a type and in geographies
where Suncor lacks experience.
Nevertheless, Suncor's impressive portfolio of growth opportunities
and unique asset base provides a high return potential in the long
run. Embarking on a series of divestitures, Suncor is getting back
on track following its merger with Petro-Canada.
However, we prefer to remain on the sidelines at this point until
we get a better proof of the company's sustainable operational