The ongoing wildfires across western Canada, particularly in Alberta, have introduced a temporary yet significant factor in the dynamics of oil prices. As flames force evacuations and disrupt production in one of the world’s largest oil companies, there’s a noticeable ripple effect on the global oil market. This situation presents an immediate impact on Canadian oil production and infrastructure.
Canadian Wildfires and Oil Prices: A Temporary Boost
Wildfires continue to rage across Alberta, threatening additional crude oil production and prompting evacuation alerts. British Columbia is currently battling 433 active wildfires, and there are 176 active wildfires in Alberta, including more than a dozen in the Fort McMurray region, Canada’s biggest oil sands production hub.
On July 16, Suncor Energy Inc. (SU), one of Canada’s largest oil producers, curtailed operations and evacuated nonessential workers due to a 200,000-acre blaze from its 215,000 bpd Firebag site because of a nearby fire. Also, this week, Imperial Oil announced plans to evacuate non-essential personnel from its 275,000 bpd Kearl oil sand site, nearly 70 km north of Fort McMurray in northern Alberta. Firebag and Kearl sites together produce over 500,000 barrels of oil per day.
Approximately two-thirds of Canada’s daily oil production, totaling five million barrels, comes from the oil sands region. The escalating wildfire crisis is raising alarms among analysts about significant oil production cuts.
“While wildfires have already forced some producers to curtail production, these fires still threaten a large amount of supply,” ING Group analysts stated in a research note.
In the short term, the wildfires create a tighter oil supply, which can lead to higher prices. It is particularly relevant in a global market already sensitive to geopolitical tensions and supply chain disruptions.
Amis this backdrop, Suncor Energy Inc. (SU) and Canadian Natural Resources Limited (CNQ), with their solid balance sheets, diversified operations, commitment to offering greater value to shareholders, and recovery potential, stand out as promising investments amid the current challenges posed by Canadian wildfires.
These companies’ ability to adapt and thrive in the face of adversity underscores their potential for sustained growth and stability in the evolving energy landscape. Let’s discuss SU and CNQ’s fundamentals and growth prospects in detail.
Suncor Energy Inc. (SU)
Suncor Energy Inc. (SU) is Canada’s leading integrated energy company, with operations that include oil sands development, production, and upgrading; offshore oil production; petroleum refining; and its Petro-CanadaTM retail and wholesale distribution networks. SU’s diversified operations and strong balance sheet cushion against volatile market conditions.
Notably, SU pays a generous dividend to its shareholders. On June 25, the company’s Board of Directors paid a quarterly dividend of $0.545 per share on its common shares to shareholders of record at the close of business on June 4. Suncor Energy pays an annual dividend of $1.59, which translates to a yield of 4.17% at the current share price.
Moreover, the energy company’s dividend payouts have increased at an impressive CAGR of 33.8% over the past three years. SU has raised its dividends for three consecutive years. During the first quarter of 2024, the company returned $1 billion to shareholders via $700 million in dividends and $300 million in share repurchases.
For the first quarter that ended March 31, 2024, SU reported record upstream production of 835,000 barrels per day (bbls/d), up 12.6% year-over-year. Upstream included Oil Sands bitumen production of 932,100 bbls/d, compared to 811,300 bbls/d in the previous year’s quarter, mainly due to higher absolute bitumen production at Fort Hills and Oil Sands operations including record Firebag production.
The company’s refined product sales were a record 581,000 bbls/d in the first quarter, an increase of 12.9% year-over-year, driven by solid refinery production and SU leveraging its extensive domestic sales network and export channels, as well as the impact of restart activities at the company’s Commerce City refinery in the prior year’s quarter.
As of March 31, 2024, Suncor’s net debt was $13.49 billion, a decline of $193 million compared to December 31, 2023, and $2.23 billion versus March 31, 2023.
In addition, SU’s adjusted operating earnings were $1.82 billion, or $1.41 per common share, compared to $1.81 billion, or $1.36 per common share, respectively, primarily due to increased Oil Sands sales volumes and refinery production in Refining and Marketing (R&M). Moreover, its adjusted funds from operations came in at $3.17 billion and $2.46 per share, up 5.6% and 8.8% year-over-year, respectively.
Regarding SU’s robust operational and financial results, Rich Kruger, the company’s President and CEO, said, "Our strong 2024 first quarter performance continued to build on the momentum established in the second half of 2023, with our workforce safely and cost-effectively delivering record high volumes and reliability across the board, upstream and downstream.”
"Our determination to consistently achieve the highest levels of performance starts with a top-to-bottom focus on the fundamentals of safety, reliability, and profitability and continues with a sense of accountability to deliver on our commitments,” Kruger added.
Wall Street appears bullish about SU’s prospects in the upcoming quarters. Analysts expect Suncor’s revenue and EPS for the fiscal year (ended June 2024) to increase 3.3% and 13.1% year-over-year to $8.96 billion and $0.80, respectively. Also, the company has topped the consensus EPS estimates in all four trailing quarters, which is impressive.
Shares of SU have surged more than 20% over the past six months and nearly 19% year-to-date.
Canadian Natural Resources Limited (CNQ)
Canadian Natural Resources Limited (CNQ) is a senior crude oil and natural gas production company with operations in its core areas located in Western Canada, the United Kingdom portion of the North Sea, and Offshore Africa. The company’s operational flexibility and robust financial health make it a buy, even amid the ongoing wildfires.
During its 35 years of operations, Canadian Natural delivered significant value to its shareholders. The company has a solid history of increasing its sustainable dividend for 24 consecutive years, with a CAGR of around 21% over that time. Moreover, commencing in 2024, CNQ is returning 100% of free cash flow to its shareholders.
In the first quarter of 2024, Canadian Natural’s returns to shareholders totaled $1.70 billion, comprised of $1.1 billion of dividends and $0.6 billion through share repurchases. After last quarter’s end, the company announced a quarterly cash dividend on its common shares of $1.05 per share on a pre-stock split basis, or $0.525 per share post a two-for-one share split. The quarterly dividend was paid on July 5 to shareholders of record as of the close of business on June 17, 2024.
As previously announced in February, CNQ’s Board raised the quarterly dividend by 5% to $1.05 per common share. This reflects the Board of Directors’ confidence in the sustainability of the company’s business model, the robustness of its balance sheet, and the strength of its diverse, long-life, low-decline reserves and asset base.
Canadian Natural continues to focus on safe and efficient operations. In the quarter that ended March 31, 2024, the company delivered an average production of 1,333,502 BOE/d, comprising total liquids production of 975,668 bbl/d and natural gas production of 2,147 MMcf/d.
Further, CNQ’s first-quarter adjusted net earnings from operations were $1.47 billion, or $1.37 per common share, respectively. Its cash flows from operating activities rose 121.5% year-over-year to $2.87 billion, and cash flows from investing activities were $1.39 billion, up 20.7% from the prior year’s quarter. Also, the company’s adjusted funds flow for the quarter was nearly $3.10 billion.
The company also maintains a robust balance sheet and financial flexibility, with approximately $6.80 billion in liquidity as of March 31, 2024.
Additionally, Canadian Natural targets solid production from its Oil Sands Mining and Upgrading assets in the second half of 2024. This goal will be supported by optimizing turnaround activity, completing final tie-ins, and advancing the commissioning of the reliability enhancement project in Q2 2024.
CNQ’s 2024 development plan strategically schedules conventional activity for the year's second half to better align with increased market egress and improved crude oil pricing, thereby maximizing value for its shareholders. Once the Trans Mountain Expansion (TMX) pipeline is completed, there will be ample egress and optionality for its crude oil products.
Street expects CNQ’s revenue for the second quarter (ended June 2024) to increase 5% year-over-year to $6.20 billion. The consensus EPS estimate of $0.58 for the same period indicates an improvement of 35.4% year-over-year. Moreover, the company has surpassed consensus EPS estimates in three of the trailing four quarters.
CNQ’s stock has surged more than 6% over the past six months and nearly 14% over the past year.
