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Update Report
August 3, 2004
Suncor Energy Inc. (NYSE) SU
52-week range $17.86-$29.99
Market Cap $13.42B
Shares Outstanding 452.83M
Book Value $7.11
Price/Book 4.18
Average Daily Vol. 860K
Target Price $38.00
Target Percentage 28%
Suncor Energy Inc. is an integrated Canadian energy company, which is engaged in production, refining and marketing of oil and natural gas. The stock Suncor Energy Inc (SU) has performed quite well since our initial recommendation in November 2003 at a price of $21.93 per share. During this period the stock has risen $7.60 per share or 35% while the overall markets have been relatively unchanged.

We are attracted to Suncor Energy for the following reasons:

  • The estimated reserves of the oil sands of Alberta are about 7.5 billion barrels. This sizeable deposit will more than offset the declining oil production of the North Slope.
  • Suncor has achieved a daily production output of a little over 200,000 barrels a day. Also, the company had higher natural gas production up to 209 million cubic feet per day (up 19%).
  • While the cost of production from oil sands is higher than conventional oil production, it’s still well below the average price of oil over the past several years. At the present time the average cost of production is about $11 per barrel; which compares to an average selling price of $25 per barrel. With the price of oil over $40 per barrel, we expect second half 2004 and 2005 profits to continue to be robust. This is also true for natural gas, which is near the $6 level, and Suncor will increase its natural gas production.
  • While we expect oil prices will decline somewhat, (possibly to $36-$38 per barrel) the company will continue to have higher profits due to increased oil and gas production.
  • For 2004, we expect the company to earn about $1.90 per share and generate cash flow of about $2.75 per share. At $29 per share, we believe the company is attractive; especially in view of its substantial petroleum reserves.
We recommend Suncor Energy Inc. as an attractive investment in the energy industry.
We have increased our target price to $38 per share from $31 per share



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