Canada's biggest energy firm and the largest oil sands outfit,
Suncor Energy Inc.
) recently declared that it is not proceeding with the
$11.6-billion upgrading plant in Northern Alberta. The Voyageur
upgrader project was a joint venture between Suncor and France's
INTEROIL CORP (IOC): Free Stock Analysis
PBF ENERGY INC (PBF): Free Stock Analysis
SUNCOR ENERGY (SU): Free Stock Analysis
TOTAL FINA SA (TOT): Free Stock Analysis
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The upgrading plant was intended to convert raw bitumen into
refinery-ready synthetic crude oil. It was expected to have a
capacity of 200,000 barrels per day.
The decision to abandon the project was made after the sales of
synthetic crude oil from Alberta faced new competition from a
flow in light oil production in the United States. After a
thorough review of the project, management at Suncor found it
unprofitable in the long run.
As a result of this cancellation, Suncor expects to incur a
charge of $140 million in net income and $180 million in cash
flow from operations during the first quarter of 2013.
Meanwhile, Suncor also acquired Total's interest in the Voyageur
upgrader project for $515 million to get full control over the
Suncor currently retains a Zacks Rank #3 (Hold), implying that it
is expected to perform in line with the broader U.S. equity
market over the next 1 to 3 months.
The company has significant oil sands and a conventional
production platform, huge long-lived oil-sands reserves and an
impressive downstream portfolio. The company's asset base
includes substantial conventional reserves and production at
offshore Eastern Canada and in the North Sea, which generate
strong margins and should provide free cash flow to fund future
oil sands expansion.
However, Suncor's deep oil sands technology, though proven, is
still vulnerable to potential implementation delays, in our view.
In particular, there are risks related to growth and other
capital projects that depend wholly or partly on new
technologies. The success of these projects remains uncertain.
Meanwhile, there are other firms in the energy sector that are
performing better and are worth considering at the current level.
PBF Energy Inc.
). Both these stocks sport a Zacks Rank #1(Strong Buy).