Business Administration - Financial Planning RFC125 Lecture Notes - Lecture 3: Synthetic Crude, Canadian Oil Sands, Exxonmobil
28 May 2018
School
Professor
Analyst review
• Joe Gemino, CPA Equity Analyst 9/14/17
• Suor Eerg is oe of Caada’s leadig itegrated eerg opaies,
focusing on crude oil production, refining and upgrading operations,
and the marketing of petroleum products. Upstream operations are
primarily focused on the development and production of the Athabasca
oil sands and are supplemented with conventional crude oil that
proides Suor ith aess to higher orld priig. Suor’s itegrated
operations help to mitigate market volatility and capture refined
produt priig for the opa’s rude production. However, high
sustaining capital requirements result in unfavorable cost structures
when compared with peers.Like peers, Suncor faces an uphill struggle
coping with lower oil prices. Suncor began its Hebron and Fort Hills
expansion projects before the downturn in the oil price environment,
and it is continuing the projects despite the unfavorable economics.
Depressed realized pries hae stalled the groth potetial of Suor’s
additional oil sands assets, as proposed expansion projects still require
high leels of apital spedig. Hoeer, e epet the opa’s pilot
program with Nsolv to result in future expansion at its Meadow Creek
projet, although oerial iplatatio is’t epeted util the id-
2020s. Additionally, the recent downturn in oil prices provided Suncor
with acquisition opportunities that increased its stake in Syncrude at a
fraction of what it would cost to undertake an expansion project. In the
current environment, leverage remains reasonable and is attributed to
Sunor’s itegrated operatios. Suor’s apital resoures, oupled ith
its operating cash flow, allow the company to weather the near-term
storm and focus on current growth projects without compromising the
alae sheet. The opa’s future oil sads projects could drive
significant growth in a better oil-price environment. However, these
projets are’t eooial util solet teholog is ipleeted,
limiting their upside. Therefore, we believe the stock is modestly
overvalued based on its current prospects and future solvent-based
technology implementation
A little history
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