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Suncor Hikes Syncrude Stake & Buys Fenja Project Interest


Suncor Energy Inc. SU recently announced two acquisitions: one at Syncrude oil sands project and the other at Fenja Development, an offshore project.

Syncrude Deal

Suncor has agreed to buy 5% interest in the Syncrude project from its partner Mocal Energy and increase its share in the joint venture. Per Suncor, the deal, which is valued at $730 million, is expected to close by March. The effective date of the transaction is Jan 1, 2018. The deal increases Suncor's interest in the project to 58.74%. We note that Suncor’s share of production from the Syncrude operations in the fourth quarter of 2017 was 174,400 barrels per day (Bbl/d) compared with 187,000 Bbl/d in the year-ago quarter.

Deal Rationale

The transaction is expected to add a capacity of 17,500 barrels a day of light sweet synthetic crude to the company's portfolio. The move is in line with the company's strategy to invest in projects that would help grow shareholder value in the coming years, apart from a vote of confidence in the long-term future of oil sands.

In a similar move, Suncor increased 2.26% working interest in the Fort Hills project, which it bought from Total S.A. TOT last month.

Fenja Development

Located in the Norwegian Sea, the Fenja field is supposed to start production in 2021. Suncor Energy Norge AS, a wholly owned subsidiary of Suncor, acquired 17.5% interest in the Fenja Development from Faroe Petroleum. The deal — valued at $54.5 million — is anticipated to be over by the second quarter of this year.

Suncor has VNG Norge, Point Resources and Faroe Petroleum as partners in the project with 30%, 45% and 7.5% interests, respectively. Suncor is expected to invest C$280 million as its share of go-forward capital in the project.

Deal Rationale

The transaction is expected to add a lesser risked asset to Suncor's offshore portfolio. The move is anticipated to assure profitable growth for the company in the long term.

Price Performance

Suncor has gained 4.6% in the last year against 12.6% decline of its industry.

About Suncor Energy

Calgary, Alberta-based Suncor Energy is Canada’s premier integrated energy company. Suncor's operations include oil sands development and upgrade, conventional and offshore crude oil and gas production, petroleum refining, and product marketing under the Petro-Canada brand. It is one of the largest owners of oil sands in the world. 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. Suncor’s business can be divided into three main segments: Oil Sands, Exploration and Production, and Refining and Marketing.

Through its aggressive expense management, Suncor has been able to lower its cash costs amid the industry downturn. This has helped the company take advantage of the rebound in oil prices. Moreover, Suncor's healthy financial profile allows it to pay an attractive dividend while pursuing an aggressive share repurchase program.

Zacks Rank and Stocks to Consider

Suncor Energy has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Other top-ranked stocks in the oil and energy sector are Cabot Oil & Gas Corporation COG and Pioneer Natural Resources Company PXD. Both these companies sport a Zacks Rank #1.

Houston, TX-based Cabot is an independent energy company. Its sales for the fourth quarter of 2017 are expected to increase 36% year over year. For 2017, the bottom line is expected to be up 342.9%.

Irving, TX-based Pioneer Natural Resources is an independent oil and gas exploration and production company. Its revenues for first-quarter 2018 are expected to improve 15.6% from the prior-year quarter. For 2018, the bottom line is anticipated to be up 149.5%.

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