Suncor Energy Inc. T.SU

Getting Back to First Principles

[Experienced]

Over decades that I have been investing yhere has been one fundamental principle that I followed.  I wanted to put my money into investment where I could get the best risk adjusted return on that money.

So when I listen to the discussion as to how long it might take for alternative technologies to eliminate the need for the world to use petroleum products my overwhelming reaction from an investment point of view is that it doesn't matter.  The point is that the direction arrow for the future is that there will be a substitution and so investment in energy outside of short term gains from market fluctuations cannot be better than investing elsewhere where there are significant growth possibilities.  With growth comes the opportunity to make money.

To use Warren Buffet's investing principles, one of them is to invest in companies that have a moat around them.  In the case of oil, this moat has been breached.  How long the siege takes before submission is just a matter of time but for sure there is no way for the moat to be rebuilt and force the invaders to find another target.

Another way to look at this is to sit back and do an inventory of the number of things around you that didn't exist when you were an infant.  The older you are, the longer the list.  At my age when I look around just about everything I see didn't exist when I was a child.  The rate of change of these changes is getting quicker and so it will be a shorter time before something becomes obsolete and something new takes its place.  This is going to happen to oil.  It's not an "if"....it is a "when".

Getting back to my opening paragraph, the key to successful investing is to figure where this change is going and find companies that will ride that wave.

In the case of SU, for sure because it is a low cost producer and is finding ways to further reduce these costs through co generation etc, it will make huge profits for another X number of years.  None of this is a secret and has been by and large priced into the SP already.  Company management has been doing a good job using these outsized profits/FCF for share buybacks and debt reduction which are good things but none of that excites the grownups on Wall Street and Bay Street and elsewhere around the world.  All they see (rightly or wrongly) is a company that doesn't have any good ideas to use this money to grow the company and so they are just giving it back to shareholders in one form or another and they are doubling down on oil by buying Fort Hills and planning to spend billions on this operation.

[meritmat]

Well as long as that free cash flow ends up in share holders pockets I don't care that there not growing.  They have decades of production.   If people don't want to own a company paying 5-10+ percent div..........sucks to be them 

[Experienced]

A couple of comments.... 1....if all you want/need is a 5% total return each year there are safer and less risky investments 2....it is not clear that SU has decades of production at the current level since they require environmental approval for the base plant extension in less than 10 years or else their production level will fall.  In the current political environment this approval will

[meritmat]

Ya that's true.  Wait to the Libs are out and have the Cons green light that expansion   

[MigraineCall]

These are excellent points, and deserve some careful consideration. My belief is that in the mad rush to shift to ESG and transition side with investment, too many people jumped from one side of the boat to the other too fast, leaving the traditional energy side without enough capital to maintain necessary levels. Investors will come back to level it out, only before nearly sinking the ship. My

[Kman86]

You hit the nail on the head. I'd consider a large percentage of these EV and clean energy companies as speculative at this point and certainly not a place I would like to have my money. I'm not a fan of gambling. If the government and society want to get serious with EV vehicles for example, the vehicle prices sure as hell better come down. In a day and age where people can barely make

[Experienced]

Great discussion folks!!! Main reason that I follow this Board and post on occasion. A few thoughts/comments.... Migraine - Interesting that you mention the dot com period.  Just prior that time and during I was heavily invested in mining stocks.  The main reason for my investment in those businesses was that the commodity prices when I bought them was below the cost of production and

[HollerAtTheMoon]

Speaking of Warren Buffet investing principals have you noticed his investment in Occidental Petroleum Corporation