Business Is Booming in 'the Texas of Canada'
Oil prices are at the highest levels in nearly a decade...
West Texas Intermediate ("WTI") crude recently crossed above $90 per barrel for the first time since 2014. A booming economy is causing strong demand, while oil producers like the U.S. and OPEC are keeping supply tight.
More recently, tensions between Russia and Ukraine have provided a short-term tailwind for oil prices. You see, Russia is the European Union's main supplier of crude oil and natural gas. With Russian troops entering Ukraine, it's possible that sanctions could be placed on the country – disrupting the European energy supply and pushing prices even higher. That could force Europe to turn to other energy sources to fill the gap.
Today, we're highlighting a company that's thriving with higher oil prices...
Suncor Energy (NYSE: SU) is a $42 billion energy company located in Alberta, Canada.
Canada has an estimated 168 billion barrels of oil reserves in the ground. That's more oil reserves than in Iran, Iraq, or Russia. And it's far more than the U.S.'s 47 billion barrels of oil reserves.
Most of Canada's oil is in the form of "oil sands." Recovering the oil is an extensive undertaking – you scoop out the oil sands and load it onto a truck... with a truck bed that can hold 400 tons of oil sands. Then, you use a special process to extract a thick, dense form of crude oil, called bitumen.
The end product is a "heavy," less-desirable form of oil. It requires more processing to make into high-value products... So it sells at a discount to WTI. Today, this "Western Canada Select" crude trades at about $75 per barrel (compared with $90 for WTI).
Ninety-eight percent of Canada's oil reserves are in one province – Alberta – "the Texas of Canada." And Alberta-based Suncor controls more of those oil reserves than any other company.
Suncor brought in $31 billion in revenue in 2021 – up 59% from 2020. More than half of that revenue came from refining, while oil sands made up about 40% of revenue. Oil exploration and production made up the remaining 5%.
Suncor is well-positioned to lead the way as demand for crude surges. You see, the company has been investing heavily to improve its capacity. Its Fort Hills project is a prime example...
This staggering project cost $17 billion to set up, and it took six years to build. It is a marvel of engineering.
Fort Hills came online in 2018, and it can produce oil sands for 50 years. It currently has the capacity to produce 14,500 tonnes of oil sand every hour. Here's why investments like this are so important...
For oil sands, once the infrastructure is in place, you just keep feeding the sands into one end and taking oil out of the other end – for the next half-century. This is far different than U.S. shale oil wells, which have a significantly shorter lifespan.
Suncor isn't just an oil-sands business either...
It owns more than 1,500 gas stations across Canada (with the Petro-Canada name). It also owns refineries and wind power projects. It's even been building electric-vehicle charging stations from the west coast of Canada to the east coast. It's truly an "integrated" oil company – involved in energy at every step, from the dirt in the ground all the way to the end user.
And big-name investors have also seen the opportunity in Suncor...
Legendary investor Warren Buffett's holding company Berkshire Hathaway has held Suncor shares at various times since 2013. As recently as February 2021, Berkshire Hathaway held about $200 million in Suncor shares. (It has since exited its stake.)
Suncor's stock has soared alongside oil prices. Over the past 12 months, Suncor shares have risen about 44%. That outperforms the 12% gain in the S&P 500 Index and even outpaces the 42% gain in the energy sector – as measured by the Energy Select Sector SPDR Fund (XLE).
Suncor has a great business that touches every piece of the energy chain. And with oil prices at eight-year highs, and showing no signs of easing just yet, the company is thriving.
Sometimes investing is simple.