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Suncor Energy (SU) Increases Stake in Fort Hills Project

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Suncor Energy Inc. (SU - Free Report) has recently resolved a commercial dispute related to the Fort Hills project, which also has Teck Resources Ltd (TECK - Free Report) and TOTAL SA's subsidiary, TOTAL E&P Canada as partners.  Suncor Energy and Teck Resources have received more working interest in the oil sands mine project from TOTAL.

While Suncor received 2.26% from TOTAL, Teck received 0.89%. TOTAL now owns 26.05% of the C$17 billion ($13.56 billion) project. The dispute began in July 2017, when TOTAL declined to contribute further funding for the project. Per the deal, Suncor Energy and Teck Resources will now contribute more toward the project – C$300 million and C$120 million, respectively. Notably, per Suncor Energy's 2018 capex projection, it expects cash operating costs per barrel at Fort Hills to be within C$20.00 to C$30.00. Suncor Energy expects the increase in ownership to benefit it in the coming quarters.

Located in Alberta’s Athabasca region, the Fort Hills oil sands mining project is an undeveloped oil sands mining asset. Suncor is the operator in the project. In the test runs conducted during fourth-quarter of 2017 at Fort Hills, the partnership witnessed a production of 6,000 barrels per day (bpd). Currently, more than 80% of the Fort Hills plant is operational. The project is expected to come online by mid-January. Following the completion of the rampup, the project is expected to have a 190,000 bpd output. The partnership expects the project to attain 90% capacity by 2018. 

Meanwhile, increasing oil sands supply in Canada is becoming heavy on the country's pipeline capacity, which has snowballed into a price discount for Canadian heavy crude against the West Texas Intermediate (WTI). The start-up will increase pressure on the supply.

Price Performance

Suncor has gained 13% in the last year against 6.2% 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.  However, the operational challenges and unplanned outages at Syncrude oil sands project have left investors disappointed.

Zacks Rank and Stock to Consider

Suncor Energy has a Zacks Rank #3 (Hold).

A better-ranked stock in the oil and energy sector is Northern Oil and Gas, Inc. (NOG - Free Report) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Minnetonka, MN-based Northern Oil and Gas is an independent energy company. Its sales for the fourth quarter of 2017 are expected to grow 54.5% year over year. The company pulled off an average positive earnings surprise of 175% in the last four quarters.

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