Despite Falling Crude Prices, Suncor is a Buy

2015 was a very bad year for oil companies as the oil prices moved from above $100 per barrel in 2014 to below $35 per barrel. Despite all the problems faced by the companies in the weak oil market, Canadian oil giant Suncor Energy (SU) is growing vigorously. Investors looking to bet on crude’s recovery should definitely take a look at Suncor as the company has nicely streamlines its business and will likely perform nicely in the long run.

Amid the weak crude environment, many oil companies have been struggling to stay alive.
Suncor, however, has managed to remain profitable despite the downfall.

In Q3FY15, Suncor Energy shared earnings per share of $0.28, $0.10 better than the analyst estimate of $0.18. The company not only produced robust results in its third quarter, but also achieved all its goals in 2015. It was the third successive quarter in which company reached 90% throughput on its upgraders as well as lingered its trend of progressively decreasing costs. Since 2007, in previous year, the company’s oil sands operating costs dropped to lowest level C$27 per barrel. Suncor also delivered record in-situ production at an average cash price of just above $12.

One of the most exciting thing about company is that it has not only achieved its 2015 goals, but it has already achieved its 2017 goal of 90% throughput, proving that it consists of huge potential to produce strong results even in the weak market.

The primary reason that sets Suncor Energy apart from various other companies is its vertical incorporation whereby it owns refining resources. The company is well positioned to deliver strong cash flow despite frail oil prices. According to the company’s CEO, refining and marketing section was responsible for generating 42% of its cash flow in previous quarter, which escalated 20% compared to the same quarter in 2014.

Due to the weak oil prices, it is very necessary for the oil producers to lookout every penny they use, and it has been an actual strength of Suncor Energy. Despite the fact that most of the company’s rivals are still struggling in the weak market, Suncor in reality is producing free cash flow. This achievement can act as a growth prospect for the company in the long-term.


While the outlook for crude oil still looks weak, Suncor has managed to remain profitable in the worst of times. However, Suncor looks like a good investment even if crude prices stay near the current levels. If crude prices recover in the future, Suncor is perfectly positioned to benefit from it. The downside here is pretty limited and I think Suncor is a buy.
Published on Jan 16, 2016
By Yaggyaseni Mittra

Copyrighted 2020. Content published with author's permission.

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