Royal Dutch Shell, Conoco Phillips, and Marathon Oil have all sold off huge swaths of their oil sands projects this year, and Canada's biggest oil producer, Suncor Energy (NYSE:SU), is finally looking to get in on that action.
In this clip from the Industry Focus podcast, Motley Fool analysts Sean O'Reilly and Taylor Muckerman take a look at Suncor, and what it might be waiting for before jumping into the fray.
A full transcript follows the video.
This video was recorded on May 4, 2017.
Sean O'Reilly: Popping back up north here to Canadian oil sands, Suncor Energy, which is known for being a Canadian oil-sands producer, and Warren Buffett actually used to own shares in the company, I don't think he does anymore.
Taylor Muckerman: Yeah, they're not just a producer, they're the [ExxonMobil] of Canada.
O'Reilly: Yeah. They're looking at deals, basically looking to pick up a few assets in the Canadian oil sands that are basically being sold by other international energy companies that are not domestic in Canada. They noted the deals; it seems like there won't be numerous, because Suncor is known for having high expected internal return hurdles.
Muckerman: Which, as a shareholder, you could appreciate.
O'Reilly: For sure. So why aren't more oil companies like that?
Muckerman: That's a good question. I think that's a philosophical question.
O'Reilly: I'm going to go get my pipe.
Muckerman: [laughs] No, there's a shortage of those. It'd better be an American-made corncob pipe.
O'Reilly: [laughs] Wrong pipe, dang it!
Muckerman: So, you figure, you've seen Royal Dutch Shell, Conoco Phillips, and Marathon Oil all sell, if not all, then a majority of their Canadian oil-sands exposure this year already. Suncor hasn't been involved in that. They did buy some oil-sands exposure, more oil-sands exposure, last year. But they're hearing rumblings of other companies wanting to sell out of the oil sands. If the price is right, like you said, they're not going to change their ways in order to purchase, which may be why they didn't get in on the previous three deals that have been announced this year. But if oil prices continue to slide, a better opportunity could present itself.
O'Reilly: They would be the natural buyer. These assets, if they're anywhere close to current assets, they've already got the trucks and the pipes ...
Muckerman: Yeah, the infrastructure is in place, and the ability and the knowledge and the manpower and all of that.
O'Reilly: I can't believe what a good job Suncor has been doing over the last few years. In fiscal year 2016, they just barely lost some money on a free cash flow basis, and over the last trailing 12 months thanks to this first quarter, they generated free cash flow of $600 million in Canadian dollars. It's basically one to one right now. But, anyway, that's pretty cool, to be doing that in oil sands. This is, like, the tar that you're putting in trucks, this is not easy.
Muckerman: Right. This just goes to show why they've been reportedly the best oil-sands producer for at least the last five to 10 years. When you've seen the deals that have been made, the company made a good point that now that Cenovus and Canadian Natural Resources have gone out there and purchased assets. They might not have the balance sheet purchase more, so if other companies come out and want to try to sell --
O'Reilly: Literally to clap out.
Muckerman: Yeah, there's going to be fewer buyers, therefore reducing the selling price, most likely, allowing Suncor with the balance sheet to come in and potentially scoop these things up.