Suncor Energy Inc T.SU

What's next for Suncor?

[Obscure1]

On Oct 21, 2021, the Financial Post reported that Suncor was investigating selling its Norwegian assets which amounts to the equivalent to about 30,000 barrels per day.  At the time, Brent was trading at $85 and the selling price was expected to be about US$500 million.  I haven't seen anything since until yesterday

Yesterday, www.upstreamonline.com published an update that Scotia has been hired to oversee the sale.  It is a paid service and I haven't seen anyone else pick up the article yet.

Is this a tit-for-tat move in response to the Norwegian Sovereign Wealth Fund announcement last May that it was exiting the tar sands?  I doubt it.  If the sale proceeds, I expect Suncor will use the Cdn$750 million to further pay down debt. 

I think the company has guided that their overall debt would be down to $15 billion by the end of 2021.  If SU completes the sale and continues to pay down debt at the same rate as it did in 2021, we might see overall debt at $10 billion to $11 billion by the end of this year. 

In comparison, ENB has total debt of about US$71 billion and total liabilities of US$100 billion

Now, I know that comparing ENB to SU debt is like comparing apples and oranges because the pipeline is regulated to the gills and debt servicing costs get built into the regulated rates.  But still, ten to one!

By the end of 2022, SU may end up halving its debt in two years and put itself in a position to be debt free by 2025.  Is that a good thing?  Not really for a public company. 

For example, ENB just raised Cdn$750 million at 5% maturing in 2082.  ENB stated that it is going to use the money to pay off another debt instrument, but the bottom line is that ENB has investment thresholds of 15% on renewables and 20% on hydrocarbon investments.  One of the benefits of being a public company is the ease of access to debt and equity markets. 

If Suncor is going to simply pay down its debt to zero in the next couple of years, why bother being a public company?

Given that top level management of public companies get compensated on performance, it doesn't make sense that Little and the gang would want to sacrifice growth at the cost of running debt-free. 

As such, I have to think that SU has expansion plans.  Will that be in the form of the acquistion of international partners who want out of the tar sands?  Or will SU be dipping its toe (or maybe diving in) into renewables?  Or maybe SU has its eye on a completely different business such as buying TMX.

[Experienced]

Good points!! I have found over the years that for each industry grouping there is a fine line regarding an acceptable amount of debt relative to the company's operating metrics.  For example, as you point out, regulated utilities generally higher debts relative to say EBITA than companies in non regulated businesses. The important thing in regards to your point about SU going to zero

[mrbb]

with rising interest rates and memory of lean years, paying off some debt is prudent and support market sentiment.

[Volkomm]

It's worthwhile to mention that Suncor had and has one of the most beat up balance sheets of the Canadian major's. They were once the darling of the industry but now it seems CNQ and Cenovus have taken that mantle.  These companies HAVE to pay down their debt. In my eyes running with net-zero debt strengthens the company substantially. They are no longer at the whims of the banks and

[Chad123]

Interesting points, however my view is the Head Cockroach and his band of circus clowns need to do a flip flop on Cdn energy more specifically to Oil and Gas sector. The current regime has an agenda and has implemented policies that are unfavourable to the energy sector, hence the sector has responded by using a strategy that is more freindly to shareholders. Paying off debt, buying back shares

[Vlosun]

I share your view chad. I'm SU shareholder for the dividend. Stock appreciation can wait. Pay debt and look the green narrative explode before expand. 

[Vlosun]

Why pay debt? To build a fortress balance sheet. The dividend would be rock solid. IMO was in better position for this reason.

[Eigen337]

This post has been removed in accordance with Community Policy

[Amadeus2011]

You get your vaccinations yet Eigen?

[Tommy123]

This post has been removed in accordance with Community Policy

[mrbb]

Adverse side effect of vaccination