One important factor to look at when considering an investment in an oil or gas company is that company's production. More specifically, you should look at its production history. This is because there are two main ways for an energy company to grow its top line: increasing its production of oil and gas, and securing higher prices for its oil and gas.
As oil and natural gas are both commodities, the ability of energy companies to control their prices is minimal to non-existent. Because of this, these companies can only reliably grow by increasing their production. Thus, investors should look for companies that have a history of growing production.
Declining production among the oil majors
Unfortunately, the recent trend at many of the country's largest oil companies has been decidedly negative. Over the 2009 to 2013 period, ConocoPhillips' (NYSE:COP) production declined 10.4%, Chevron's (NYSE:CVX) production declined 6.2%, and ExxonMobil's (NYSE:XOM) production declined 7.8%. The effects of this declining production show up in the companies' income statements, as all three oil giants have seen steadily declining revenues since 2011.
Admittedly, the revenue trend does not look as bad if we extend the whole way back to 2009. Remember, oil prices in 2009 and 2010 were much lower than they are today. The increased revenue from higher oil prices was able to overcome the decreased revenues from lower production. That was not the case over the 2011-2013 period because oil prices were much more steady over that period.
However, there is a large North American oil company that has managed to grow its production over the 2009-2013 period. That company is Canadian oil sands giant Suncor Energy (NYSE:SU).
Large oil sands position has allowed for growth
Suncor Energy is the largest producer of oil in Canada's enormous Athabasca oil sands, and the company's tremendous reserves in this area have allowed it to rapidly grow its production over the past five years.
In 2009, Suncor produced an average of 456,000 barrels of oil equivalent per day. In 2013, the company was producing an average of 562,400 barrels of oil equivalent per day. This is an increase of 23.3% over the 2009 to 2013 period. Clearly, this is much better than what ExxonMobil, Chevron, and ConocoPhillips were able to accomplish.
Rising oil prices improved fundamentals
One of the reasons why the company was able to grow its production is the rise in oil prices. It is much more expensive to extract and refine the thick bitumen that is found in the Canadian oil sands than more conventional sources like the aging fields that are being operated by its peers.
The higher costs involved in extracting this oil made this process a rather uneconomic proposition until fairly recently. Oil prices finally rose high enough to allow the company to begin to profitably exploit the oil sands. From there, it was able to grow its production largely by developing its existing reserves in the oil sands (although it has managed to increase its production at more conventional fields too).
Forward growth potential
It doesn't look like the growth at Suncor Energy has finished playing out, either. In fact, the company is working on several projects that should allow it to continue its forward growth. One of these projects is the Joslyn North Mine, which is expected to produce approximately 100,000 barrels of oil equivalent per day by 2017; Suncor owns a 36.8% interest in this mine.
Another growth project that Suncor is currently working on is the Meadow Creek Mine. This mine will be constructed in two phases with each phase increasing the company's production by a maximum of 40,000 barrels of oil equivalent per day. Suncor has a 75% interest in the Meadow Creek Mine.
As Suncor develops these projects, the company is likely to see a corresponding increase in its production. Suncor's management expects the company to produce approximately 550-590 thousand barrels of oil equivalent per day from its oil sands operations by the 2017-2019 period. That is more than it produced in 2013 from all of its fields, including the ones outside of the oil sands.
In conclusion, Suncor Energy has managed to grow its production at a time when many other large oil companies have failed to do so. This alone should put the company on any investor's radar. The company's forward growth prospects make it even more appealing, however, as this should result in forward revenue and profit growth.
Daniel Gibbs has a long position in Suncor Energy. He may also hold positions in any of the other stocks mentioned indirectly through mutual funds. His research firm, Powerhedge LLC, has a business relationship with a registered investment advisor whose clients may hold positions in any of the stocks mentioned. Powerhedge LLC has no positions in any stocks mentioned and is not a registered investment advisor. The Motley Fool recommends Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.