Suncor Energy Inc. (NYSE:SU) operates as an integrated energy company. Based in Alberta, the company’s operations include oil sands development and upgrades, conventional and offshore oil and gas production, petroleum refining, and product marketing under the Petro-Canada brand.
Suncor Energy Inc. (NYSE:SU)'s recent fourth quarter earnings were disappointing, as revenue decreased compared to the previous year's quarter. The company posted a net loss in the recent quarter. Suncor Energy Inc. (NYSE:SU)’s stock has been falling since it hit a high of $34.50 in February. Recently, the stock was trading at the $28 per-share level. Let's see some of the issues related to Suncor Energy Inc. (NYSE:SU).
Recent issues: Sale of Alberta gas fields
Recently, Suncor Energy Inc. (NYSE:SU) announced its plan to sell its gas fields located mostly in southern and central Alberta for C$1 billion ($980 million) to Centrica and Qatar Petroleum. Centrica will operate the assets and produce about 250 million cubic feet of gas a day this year.
According to the agreement, 60% of the assets will be owned by Centrica and 40% by Qatar Petroleum. This announcement is in line with the latest strategy of fiscal discipline at Suncor, which has been described in the later part of the article.
No-go with Voyageur oilsands upgrader
Suncor Energy Inc. (NYSE:SU) has shelved its Voyageur oil sands upgrader project due to changes in market conditions. The project is no longer economical for Suncor. In 4Q 2012, Suncor took about a $1.5 billion write-down on Voyageur.
Disappointing 4Q 2012 results
Suncor operates in four business segments: oil sands, exploration and production (E&P), refining and marketing, and corporate, energy trading, and eliminations.
Operating earnings decreased from C$1.4 billion in Q4 2011 to C$1 billion in Q4 2012. Suncor posted a net loss of C$562 million. The oil-sands segment contributed majorly toward the loss.
Cash flow from operations decreased to C$2.2 billion in Q4 2012 from C$2.6 billion in Q4 2011. The average production of the oil sands segment is 378,700 barrels per day and the total average production is 556,500 barrels of oil equivalent per day.
Suncor’s stock analysis
Suncor’s stock has a P/E of approximately 15.6, which is higher than the 8.7 P/E ratio of its direct competitor, Imperial Oil Limited (NYSEMKT:IMO). Suncor's operating margin is better at around 0.2 versus 0.1 for Imperial Oil Limited (NYSEMKT:IMO). When compared with major energy companies such as Exxon Mobil Corporation (NYSE:XOM), Total S.A. (ADR) (NYSE:TOT) and ConocoPhillips (NYSE:COP), Suncor has a greater price-to-earnings ratio.