RE:RE:RE:RE:RE:RE:RE:RE:we need senior management changeYes I agree with you 90% except that I think any fund managers that have sold off their SU shares because they're committed to divesting from oil aren't going to get lured back if SU announces some 2050 plan about being 100% renewables or by aggressively advertising their current wind farms or ev charging stations because in the end they're seen as an oil company. Funny enough, some financial engineering where they build up some renewables and spin off those assets as a separate renewable energy company they maintain ownership of would work out best. The renewables company wouldn't generate much profit but would have a high valuation and give SU a nice asset boost to its balance sheet.
Experienced wrote: Skysohigh wrote: While I agree with the beginning of your post totally I think you're overcomplicating things. CNQ by comparison has no wind farms or EV charging network and is doing much better. Why? Suncor made the misstep of cutting their dividend last year and losing their dividend aristocrat status. I would estimate that explains a $5-10 discount in its share price. Now the past being the past the best thing they can do is buy back shares while they're discounted which will be a big positive in the long run. Suncor is an oil company and they should stick with what they do best. The renewable space is not very good at generating profit and its not earning them any points with the climate change movement anyway. Their best bet IMO is reducing their ghg intensity. Their coking boiler replacement will go a long way, too bad the management didn't have the foresight to pick up a small/midcap gas producer in early 2020 to offset the higher nat gas prices they'll be dealing with. If management can improve their track record with production outages/ slope degradation issues and start raising the dividend in early 2022 this stock should catch back up with CNQ. Lastly, I know there a lot of talk of oil being over and done with but let's get real, world oil consumption is still rising. I haven't seen any quantum leaps in electricity storage or generation/ transmission. Its not going away as quickly as most people think.
Experienced wrote: Here's my take.....
Suncor management has been using its huge FCF to buy back shares and pay back debt. They have also been using this cash to engage in activities which will reduce its long term costs to produce oil and some of this activities involves the use of renewable energy and carbon capture to reduce its GHG emmisions.
All of these activities are good things and this is why for now I have stated that I support management's current strategy.
The problem with this strategy if that is all managment plans to do then....
1.....becoming a low cost producer of oil is a good thing the market believes that over the long run the world will need much less oil and so the oil that SU has will become like orphans...nobody will want or need this oil and so those who believe this will happen are selling their shares and hence the downward pressure on the SP
2....so far SU adventures into renewables has been geared towards lower the cost of producing oil and are not expected to make a significant contribution to future profitability as demand for oil goes down over the next couple of decades and hence again the downward pressure on the SP.
This is why I have repeatedly posted that sometime over the next year management has to put together a plan to get into the renewables business in a size and scope that can make a meaningful contribution to future FCF. IMO if they don't then the SP will continue to go lower because of Point 1 and 2 above.
In fairness to managment, the problem is that most renewables energy projects have been bid up in price and so it is very difficult to find a project to invest in where the return meets reasonable benchmarks. That said I do believe that such such projects do exist and in an earlier post gave India as a possible target.
As well, I do share the concern of others here who have posted here that perhaps SU managment doesn't have the people to make this transition. However, this is not a difficult problem to solve - all they need to do is find people to hire who can do it and/or JV with companies which the necessary expertise.
The future of the SP will depend on whether management has the imagination and drive to make this transition or not. If they do then the current SP is a steal. If they don't then it will be a classic value trap.
Great post Sky...
I don't believe we are far apart in our thinking.
In terms of renewables, I have said here that it is a challenge to find investments that can generate decent returns since the prices of these companies and activities is IMO overpriced. That said, there are opportunities out there but you need to look really hard to find them. Most of the great opportunities entail a higher than average risk and given the conservatism of SU mgt, would likely not be of interest to them.
I also agree with you those writing the obit for oil are a bit premature. However, the big market players are looking for companies to transition out of oil and IMO since SU for intents and purposes has not signalled that have any intention of doing so, they are being punished in terms of the SP
With respect to the dividend, I posted a few weeks ago that I see SU continuing with their share buybacks until the expiry of the NCIB in Feb of next year and they will not likely renew it or at the most scale it back. At this point I fully expect them to raise the dividend unless something really bad happens to the oil price between now and then.
In terms of SU and CNQ, IMO the primary differences are that CNQ has a more entrepeneurial mgt compared to SU and they have moved into gas production to diversify away from oil. In terms of GHG, CNQ is already involved with SU on industry-wide initiatives.