RE:Positive Q3 Comments All great points MigraineC
Was away from computer for last few days, pleasurely suprised with Q3 result. Wish i was able buy some more SU at today's open. I don't know why some see buying Teck at below cost price is a bad thing, the paper write off can be used to offset the massive real profit. I wouldn't mind if SU buys Total's share of Fort Hills for even cheaper price and take another massive paper writeoff, SU can use more tax writeoff Measured production and reserve add, and cashflow generation are the real measure of success, not some paper gain/loss for accounting purpose.
I support SU buying up FH assets or any proven reserves that they know and operate from partners for 2 keys reasons 1). Most of the initial project risk are now understood and can be managed going forward. 2) I believe we won't see any major oilsand projects get approved in the future. If SU can pick them up for cheap, that's doublely good.
Agreed with more debt reduction due to ESG, then sharebuy back. Dividend get automatically boosted when share count drop. If oil price hold up, the days of more dividend increase will come, time likely measured in months, not multi year or decade
MigraineCall wrote: I want to pull together the good points brought up by you all from the overall positive responses to Q3 results made here so far. (Excluding those suffering bipolar comment disorder, and those whiners that I hope have the suicide hotline on their speed dial.)
For the kids bouncing around screaming in the back seat (Are we there yet? ... Are we there yet?...), the report in fact came out on schedule as previously announced, 8PM MST, 10PM EST.
In summary, SU has had a fantastic Q3, along with one time balance sheet entries of asset revaluation that are non cash losses.
autofocus111: 'The dividend yield is a reasonable ~4%. The company is focused on debt paydown and share buybacks. Rightly so as long as the market refuses to value to company more in-line with peers imo.'
Agreed. Paying down debt to target levels is extremely important in a future environment where financing may be become difficult for oil companies. Next is to buy back more shares if the market is not valuing it with these low levels. The end of Q1 23 is only 5 months away, where SU will move to buy back 75% of outstanding shares from the current 50%. That will be about 1.5 Billion$ per quarter for share buybacks, and we will see higher future dividend payouts per share as they will be paid out to a lot fewer shares.
HighOctane89: The more I look into this report , the more it looks like an elaborate exercise in hiding profits . Taking an unrealized foreign exchange loss on US denominated debt seems redundant when both WTI and WCS are paid in US dollars anyways . That combined with lowering Ft Hills book value not only hid $2.5B in earnings but it also generated an $857M income tax recovery .
It is a logical accounting entry reflecting a change in value of the debt, not a cash flow impairment. The debt is in USD, and when the USD increases in value, the debt is higher in terms of CAD. However, as oil rises, and CAD increases, there will be a recapture at a later date as debt is reevaluated in CAD.
Oldnagger: In all the discussion I have read so far , there seems to be no mention of the high differential that has been in effect for WCS during Q3.
Unlike many peers, Suncor is fortunate to avoid the pain from the diff to a great extent as they upgrade a significant portion of bitumen into synthetic crude fetching often a premium to WTI, as well as the fact they capture the maximum benefit of the crack spread by selling finished product at extreme Canadian hoser pricing. Looking at the 9 month, the refining and marketing arm generated more income for Suncor than oilsand production did. 4.177B$ from the retail side vs 4.008B$ from oilsands. We should carefully consider this before we kill and cook that golden goose when considering selling the retail arm.
Obscure1: * The Q3 financials won't distract the fact that we now have a new benchmark for what bitumen assets in the ground at a fully operational project are worth today. Regardless of what people think about whether SU "stole" the asset for a song or not, the number will be used for all comparables (the term that real estate agents use) until a new benchmark is set.
Having the Fort Hills asset value depreciation now allows for a huge tax saving, as well as it puts a lower value and price Suncor will pay for the remaining quarter held by Total. An $857M tax recovery is a damn good thing. In addition, they bought these assets at an excellent low price.
Experienced: 1....SU wrote down billions on its investment in Fort Hills based on market valuations as per the PR when they bought the Teck shares and in the 3Q report. This signals that the assets of all oil producers in Canada face the same fate. Of particular interest to shareholders of SU is that SU is trying to sell PetroCanada. The company says it will be making an announcement about this at the end of the year. Does the writedown of Fort Hills suggest that we may see another writedown for PetroCanada next quarter? IMO it is quite likely that we will see this. So while the FCF numbers will continue to look good in the 4Q report, another writedown of assets will not be viewed as a good thing by the market and will be seen as two quarters in a row with bad news which lowers market confidence in the company as an investment compared to other investment choices (even in the same industry if you are an oil bull like Migraine).
The oilsands mining operation, and the refining and retail divisions are very different, with far more potential buyers willing to step in. Teck's exit had only one potential buyer, Suncor. Being vertically integrated with up and downstream assets is insurance against wide differentials. This benefit is becoming more clear every quarter as refining and marketing are now delivering more cash than oilsands operation is. With continued product shortfalls in the market, and high diesel and gasoline prices, this is bound to continue being a important asset. I hope they decide to keep it after the review.
Your points on base plant expansion permits are a concern, but SU is now one more step closer to securing future feedstock needed for the monster. Instead of both things to go wrong, we may have both things go right.
I think a dividend increase was never on the table, especially after announcing the absorbtion of a Fort Hills writedown. The company had announced a clear path going forward regarding future distribution of income, and is staying with that promise. In just 5 short months by 2023 Q1 we will see a 50% increased to 75% which is allocated to share repurchases and dividends, the rest continues towards debt.
With a personal tax bill this year of 1.5M$ due to capital gains in oil stocks so far, I for one do not want to see any more dividends to add to that pain.
Finally, I am most impressed with the massive increase in free funds flow, nearly tripling on a 9 month Y/Y basis. Last year 3.742B$ to 10.227B$ this year.
When I look forward to extrapolate the numbers in the financial report into the future, these Q3 numbers serve to not only verify but beat another data point along that upward path. I am impressed with what Suncor is doing, how it is coming off the mat and gaining strength proving discipline and to be a major cash flow generator. Along others, this company will be hard to be ignored in the energy sector as the desired major Canadian player. The spotlight is starting to swing around.
I continue to be a buyer on any pullbacks, even exceeding my margin limits, and remain overweight.