Higher debt stemming in the acquisition of Canadian Oil Sands Ltd. will likely lead Suncor Energy Inc. to divest some non-core assets, but if oil prices remain depressed, its retail gasoline business may also be offer for sale.
The $6.67-billion takeover includes $2.4 billion of debt, yet still time giving Suncor a long-life, low-decline asset throughout a commodity cycle trough.
As Arthur Grayfer at CIBC World Markets highlights, the Canadian energy giant’s strong track record provides the potential for improved profitability at the Syncrude oil sands partnership.
The analyst likes the acquisition despite noting that “Suncor essentially acquired debt and little free income.”
He doesn’t anticipate that Suncor will cut its dividend, suggesting that it’ll instead decide to sell non-core assets whose values are less impacted by current oil prices. Some possible candidates are its renewables business (six wind farms), pipeline assets and 13 major refined product terminals.
If oil prices remain lower for extended, Grayfer thinks Suncor may divest its retail business, which includes approximately 1,500 Petro-Canada gas stations.
The analyst estimates the organization will target somewhere between roughly $1 billion and $2 billion in asset sales in 2016. He believes the retail business is worth close to $3 billion.
