Suncor Energy (NYSE:SU) has richly rewarded investors over the past year. Not only has the stock vastly outperformed both the S&P 500 and most other oil stocks, but it has returned a boatload of cash to shareholders through a higher dividend and share repurchases. Cash returns could rise some more in the coming months thanks to two recently completed expansion projects and higher oil prices. These catalysts could be just the fuel this Canadian oil stock needs to continue outperforming.

The case for Suncor Energy

Suncor Energy is one of the largest and most integrated oil companies in Canada. The oil giant boasts a top-tier financial profile, backed by a cash-rich balance sheet and low production costs of just $45 per barrel, which includes paying its lucrative dividend. Because of those factors, the company had the financial resources to keep expanding during the recent oil market downturn by not only investing in two major projects but also making several acquisitions.

A long row of pumpjacks under the setting sun with snow in the foreground.

Image source: Getty Images.

Those expansion efforts have the company poised to cash in now that oil prices are on the upswing. With crude currently over $70 a barrel, Suncor is on pace to produce more than 12 billion Canadian dollars ($9 billion) in cash flow. For a company that only expects to spend CA$5 billion ($3.8 billion) this year on capital expenses, it will generate significant free cash flow, the bulk of which it will likely return to investors via additional share repurchases. Those buybacks have been one of the key factors fueling its outperformance in recent months and could be a crucial driver of the stock in the future.

What might go wrong?

Suncor Energy produces the bulk of its oil from the oil sands region in Western Canada. While that focus has enabled the company to keep costs low, it does have its drawbacks. One of them is that it gets the bulk of its production from just a few facilities, so if one goes down, it can have a significant impact on production. That recently happened as a tripped power transformer caused the 360,000-barrel-a-day Syncrude facility to go off line, and it could remain that way for more than a month. As a 58.74% stakeholder in the complex, this unplanned outage could have a significant impact on the company's production and cash flow in the coming quarter.

This outage isn't the first one to affect Suncor. In 2016, wildfires in Western Canada forced it to shut down some of its facilities for several weeks. That cost 20 million barrels of production and CA$50 million ($38 million) in added expenses relating to the evacuation and restarting activities along with the missed opportunity to capture another CA$180 million ($136.5 million) in cost savings while it suspended operations, leading it to report a deep loss in that quarter. While those fires spared the company's operations, there's a risk that a future natural disaster could cause widespread damage and even greater losses.

On top of that, Suncor Energy currently has no visible near-term growth opportunities in Western Canada due to the country's current pipeline constraints. While the company is on pace to increase production per share at a 9% compound annual growth rate through 2020, recent project completions and acquisitions are driving that growth. At the moment, the company doesn't anticipate any major expansion projects moving the needle until 2024. Instead, most of its near-term focus will be on improving cash flow at its existing operations. That lack of visible production growth could begin weighing on shares, especially if rivals are growing at faster rates.

Still plenty of fuel left in the tank

Suncor Energy has the wind at its back this year. The company is benefiting from its investments during the downturn, which positions it to cash in on higher oil prices. With its major growth project now complete, a significant portion of that cash will likely head back to investors, providing an additional boost to the stock. While that leaves some longer-term concerns about where the company grows next, it has the financial strength to make a needle-moving deal if needed. Overall, Suncor Energy might not be the top oil stock to buy right now, but it is a solid choice for investors looking for a lower-risk option.

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.