The ‘Investor’s Digest of Canada Morning Call’ November survey of more than 1,000 Canadian public companies followed by securities analysts found two integrated oil and gas stocks in the top 10 with the most buy recommendations.
No one can accuse integrated oil and gas stock Suncor Energy Inc. (TSX—SU; NYSE—SU) of being afraid to pull the trigger on deals. The Calgary-based integrated energy company, in fact, has been in the headlines quite a bit in the last little while due to its deal-making activity.
On Oct. 31, the company announced a $1.125 billion deal to sell its Petro-Canada Lubricants Inc. operations to a subsidiary of HollyFrontier Corporation. The sale includes PCLI’s production and manufacturing centre in Mississauga, Ont. and the global marketing and distribution assets held by PCLI including its global offices.
Under the terms of the agreement, HollyFrontier will continue to operate the lubricants business under the Petro-Canada trademark. “Today’s announcement is another example of how Suncor is focusing on its core assets through strategic acquisitions and divestitures that reinforce our commitment to long-term profitable growth,” said Steve Williams, president and chief executive officer of Suncor, in a statement.
Meanwhile, Suncor and the Mikisew Cree First Nation (MCFN) on Oct. 17 announced the signing of a participation agreement for the purchase by MCFN for Suncor’s East Tank Farm Development. Under the terms of the agreement, MCFN will pay 14.7 per cent of the actual capital cost of the East Tank Farm Development once the assets become operational, which is currently anticipated to be in the second quarter of 2017.
Suncor joins major North Sea exploration oil project
And on Oct. 6, Suncor finalized the previously announced purchase of a 30 per cent participating interest in the U.K. North Sea Rosebank project from OMV (U.K.) Ltd.
All necessary regulatory approvals have been received and as per the agreement, Suncor has made an initial payment of US$50 million to OMV (U.K.) Ltd. In the event the co-venturers approve the Rosebank project final investment decision and Suncor elects to participate, Suncor could pay additional consideration to OMV (U.K.) Ltd. of up to US$165 million.
In a research note, Desjardins Capital Markets analysts Justin Bouchard and Zaakir Karim say that: “Suncor continues to drive productivity improvements across its business, posting better-than-expected production and lower costs again this quarter.” The integrated energy company also provided capital expenditure guidance of $5 billion, which is lower than the analysts’ previous estimates. The downstream segment produced record throughput.
The analysts, who keep their ‘hold’ rating with ‘average’ risk as well as increase their 12-month price target to $41 per share from $38, explain that Suncor’s management team said that the company was not mulling over a large North Sea acquisition and that it was not marketing its retail business even though rumors to the contrary had been circulating.
Suncor Energy is tied for fifth place in the Investor’s Digest of Canada Morning Call survey of more than 1,000 Canadian companies. Of the six analysts covering the oil and gas stock, five rate it a ‘buy’. Only Desjardins’ Messrs. Bouchard and Karim rate it a ‘hold’.
Cenovus volumes up; operating costs down
In late October, Calgary-based Cenovus Energy Inc. (TSX—CVE; NYSE—CVE) announced results for the third quarter of 2016. Compared to the year-ago period, the company’s Canadian oil sands volume was up five per cent this year, while its total oil operating costs were down 14 per cent per barrel, which included a nine per cent reduction in oil sands per-barrel operating costs.
“We continue to deliver on our commitments, including significantly lowering our costs, bringing on new oil sands production capacity and maintaining one of the best balance sheets in the business,” said Cenovus President and Chief Executive Officer Brian Ferguson in a statement.
Odlum Brown analyst Fai Lee says in an Oct. 27 research note following Cenovus’ third quarter, 2016 results release that the company can thank its strong operational performance for those very results. Mr. Lee says that Cenovus performance came in better than consensus expectations. For instance, its cash flow per share of $0.51 was better than the consensus projection of $0.38.
The analyst, who keeps his ‘buy’ recommendation and his 12-month target price of $27 per share, adds that Odlum Brown is still optimistic about this integrated oil and gas stock’s long-term outlook due to not only its minimal-cost production profile, but also its solid balance sheet. Cenovus Energy is tied for third place in the Investor’s Digest of Canada Morning Call survey of more than 1,000 Canadian companies. All six of the analysts who cover the stock rate it a ‘buy’.
Investor’s Digest of Canada, MPL Communications Inc.
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