Suncor Energy Inc T.SU

Debt, buybacks et al

[PabloLafortune]

For sake of clarity, here are the #s as I understand them to be:

Net debt is currently 15.7B. The company has stated that once it reaches the $9B net debt floor, it will return 100% of free cashflow to shareholders. Therefore, we are $6.7B from that target. In 2021 and 2022, the company has re purchased 5.7B worth of stock. Had they used those funds to repay debt,we would only be $1B away from the $9B debt floor.  In Q2 the company paid $657M in dividends, bought back $2.6B of stock and repurchased debt worth $1.28B for a total of $4.5B.  Therefore, it is reasonable to state that absent buybacks the debt floor would be reached already ie free cashflow in July was at least $1B.  If (it won't be) Q3 was as good as Q2, and all free cashflow was paid to shareholders, then shareholders would receive $3.5B in dividends or (based on 1,522,000,000 share count as of Dec 31 2020) or $2.30 a share - for the quarter. Q4 dividend in this scenario would be $2.95 a share (if profitability was the same as Q2). IMO, the range of annual dividends in this scenario would be $10 to $12 a share. This excludes any asset sales, acquisitions, etc...At a $40 share price,, we're looking at a dividend yield of 25-30%. 

Unfortunately, they did do those buybacks.  If Q3 and Q4 come in as good as Q2 (probably won't), that would leave $7.8B available to repay debt versus $6.7B required to reach the debt floor. Therefore, if they stop buybacks and focus exclusively - save for the dividend - on reducing debt, they should reach the debt floor by December 31 esp. if we include the previously announced asset sales (offshore, wind and solar farms). Which means all of 2023 free cashflow would be returned to shareholders in the form of dividends (in this scenario). We would have missed out on 5 months of additional dividends or guess of $5.  Btw, share count is now 1,423, $10 a share is thus $14.2B or $3.5B of free cashflow required vs $4.3B in Q2. Eminently doable IMO.

[Experienced]

Guess you are assuming that they could retire all that debt without paying any redemption penalties??  Just sayin.... But what is the underlying message in all this coming from the company? They are essentially saying that they consider the best use of their FCF is to retire shares and not pay a 4.75% dividend on the retired shares and pay off debt at similar interest rates as opposed to

[PabloLafortune]

I was using net debt not LTD. They are not the same. Buybacks are over rated, Intel has been doing them for 25+ years, $50-100B cost, and look where it got them - govt has to quasi bail them out.. In addition to safety, Suncor could be blindsided by natural gas. It would probably behoove them IMO to invest some of the asset proceeds here. Kind of interesting that the market has little confidence

[Experienced]

Sorry....read your post too quickly and missed the net debt reference - my apologies. Certainly agree on the buybacks as indicated in my earlier post.  Also agree on the NG angle.

[555rookie555]

I am just a rookie and commenting here more to be educated by more experience people. What growth opportunities could we pursue that have a reasonable return at this point? Hydrogen is the big one I think of but still largely unproven in terms of profitability from my understanding. Isn't it a good idea to pay down debt and let other industry players do the research and development? I agree

[Experienced]

Great question!! There are countless companies around the world that are searching for capital and partners that are developing solutions to the problems that will emerge as the world transitions to a less carbon centric world.  In my little world I have found one such company, a private company that has the potential for a market cap of 5-10 billion in about 5 years from now when it IPOs

[Obscure1]

Experienced: Maybe you should introduce your start up to the Elliott group.  They seem to be a little more forward thinking than the dino's skulking around SU.  One unicorn could change the direction and future of SU and what startups typically need at the pre-IPO stage would be pocket change for SU. 

[Experienced]

Yep That's why I said that such a subsidiary would have to be totally independent of SU management. The other thing I have found in dealing with young companies is that in addition to money they need something else that typically doesn't cost the investor anything. What is that you ask? Simply the ability to open doors and provide access to a much broader network of contacts to do

[stwatcher]

at this price Suncor is quite complelling , management looking to disperse assets to increase shareholder value and Oil most likely will hover in this range for a bit 

[Vlosun]

What kind of investment they can do in such a landlock - eco country? Government must accept project. We are not able to secure the future of base plant production with the woke-libs. At some point i hope they will increase production but there is a lot of hurdles in Canada. The way they manage the company is ultra conservative. If oil fall hard in a recession they will be ready to eat some small