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Suncor Energy to Divest Assets

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Canada’s biggest energy firm and the largest oil sands outfit, Suncor Energy Inc. (SU - Free Report) entered into an agreement to divest its conventional natural gas and crude oil business in Western Canada. The assets will be sold to a newly formed partnership between U.K.-based Centrica plc and Qatar Petroleum International, a wholly owned subsidiary of Qatar Petroleum.

Per the deal, Suncor Energy will receive C$1 billion (US$1 billion) in cash in exchange of assets located across several regions in Alberta, northeast British Columbia and southern Saskatchewan. The transaction is likely to close in the third quarter of this year.

Suncor Energy expects production of 42,000 barrels of oil equivalent per day from this business in 2013. The deal is subject to regulatory approval under the Investment Canada Act and Competition Act.

Centrica will be the operator of this new business with a 60.0% share, while the remaining 40.0% will be held by Qatar Petroleum.

The above divestiture sounds strategically fit for Suncor Energy. The company aims to continuously improve its portfolio of assets and make large investments in profitable projects to generate strong returns for shareholders.

Suncor Energy 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 offshore Eastern Canada and in the North Sea that generate strong margins and should provide free cash flow to fund future oil sands expansion.

However, as is the case with other exploration and production companies, Suncor Energy’s results are directly exposed to oil and gas prices, which are inherently volatile and subject to complex market forces. Realized prices could differ significantly from our estimates, thereby affecting the company’s revenues, earnings and cash flows.

Meanwhile, there are other firms in the energy sector that are performing better and are worth considering at the current level. These include InterOil Corporation , Stone Energy Corp. and Cheniere Energy Inc. (LNG - Free Report) . All these stocks sport a Zacks Rank #1(Strong Buy).

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