In late March, one of Canada’s largest and most influential oil and gas companies, Suncor Energy (TSX:SU)(NYSE:SU) announced it was suspending (i.e., no longer paying) its dividend. Suncor also announced the company was slashing its capital spending (capex) budget by more than one-quarter.
These moves may still feel drastic, considering we still seem to be in the early to mid-innings of this coronavirus pandemic. But I believe, unfortunately, we’re about to see more such actions in the weeks to come. This is only the tip of the iceberg.
As far as quality goes, in the Canadian oil sands, Suncor is as good as it gets. The oil producer has more than three decades of reserve life. The company’s reserves are likely to last longer if production indeed slows, which is indicated by lower capital spending levels.
Investors must also remember that a producer’s reserves are valued at strip (the futures price of oil) rather than the spot (the price today of a barrel of oil - typically the price you see floating around on the news).
Suncor remains a relatively low-cost producer, having spent tons of capital in years past to develop the assets it holds today, meaning this company is far less impacted by low oil prices relative to its peers.
Of course, with oil prices this low, nobody is making money. But over the long-term, if you believe (as I do) that Suncor will survive, this stock could really take off from these bargain levels.
Invest wisely, my friends.
