Yahoo Finance 'Elevated risk, elevated reward': Suncor faces scrutiny ahead of Q3 earnings
Suncor Energy Inc.‘s decision to consolidate interest in its Fort Hills oilsands project by scooping up Teck Resources Ltd.’s stake was well-received by investors when it was announced last week, but questions continue to swirl around the embattled producer as it searches for a new chief executive and embarks on a multi-year mission to address safety and production issues in its oilsands operations.
The Calgary-based oil and gas producer announced last Wednesday that it is set to acquire Teck’s 21.3 per cent stake in Fort Hills for $1 billion in cash, boosting the company’s aggregate share in the project to more than 75 per cent — a strategic move that analysts largely welcomed as consistent with Suncor’s long-term aims to consolidate and optimize its oilsands assets.
However, a disproportionate number of workplace fatalities in recent years as well as missed production targets, which led to the resignation of Mark Little as chief executive last July, continue to drag on the company’s reputation and stock price.
Suncor has not yet named Little’s permanent replacement — though interim CEO Kris Smith has said he will start addressing the company’s issues while the board of directors continues its search — and without a CEO at the helm, there is still significant uncertainty surrounding the company, said Rafi Tahmazian, partner and senior portfolio manager at Canoe Financial LP.
“The person who’s going to take on this role has a monolithic task,” Tahmazian said. “This is a company that has elevated risk until they start filling in some of those boxes. And you have to accept that it’s going to be a company that will probably have an anchor on it a bit more relative to the the peer group.”
“I would say this has definitely elevated reward, but it has elevated risk. Until we start filling in who these people are and what they’re going to do. I’m not prepared to say that they can’t do it or can until we see who’s going to be the person, the maestro at front of the orchestra.”
Suncor’s stock climbed above $47 Tuesday, up more than five per cent since the Fort Hills news was announced, ahead of the company’s release of third-quarter earnings Wednesday.
Analysts have praised Suncor for acquiring Teck’s stake at an attractive price, despite the accompanying $2.6-billion writedown. There has been less enthusiasm over Suncor’s warning to expect five per cent lower production and five per cent increased operating costs per barrel from Fort Hills over the next three years as it works to address production and safety issues.
“We will remain in ‘show me’ mode until operational momentum is captured in results,” wrote Travis Wood in a National Bank research note last week that took a negative view of the Fort Hills consolidation.
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Some analysts have also warned the company could be on a buying spree, a trend unlikely to please investors who would prefer Suncor focus on shareholder returns.
“We would not be surprised if the company is in negotiations to purchase (TotalEnergies SE)’s 24.6 per cent interest in Fort Hills … as Teck’s move could also push Total to sell as opposed to spin out its oilsands assets as it previously intended to potentially do,” wrote Phil Skolnick of Eight Capital Corp. in a note.
“We could also see (Suncor) looking to acquire CNOOC and Sinopec’s combined 16.2 per cent interest in Syncrude (China has been reported to be looking to exit Canada), which, based on (Suncor’s) 2022 guidance, would provide an incremental 48-51 (thousand barrels of oil per day) of production.”
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