Year 2021 was a record-breaking year for Suncor Energy (TSX:SU)(NYSE:SU), Canada’s largest oil sands producer. Higher oil and gas prices led to a significant recovery in earnings, doubling dividends, and boosting the company’s financial position.
Despite this achievements, Suncor’s stock has declined significantly this year. While other energy stocks when up by more than 70%, Su stock gained only 38%.
Suncor Energy in 2022
Recently, the industry has become more optimistic. Canadian energy companies expect stable oil and gas prices in 2022. So, higher free cash flows, higher earnings to shareholders, and balance sheet improvement will also likely keep pace in 2022. It will be exciting to see if companies increase their climate-related spending next year.
Suncor Energy announced a similar plan on December 13. It expects to invest $4.7 billion in 2022, roughly 15% more than in 2021. However, this forecast is $300 million lower than the previous one. Suncor expects to produce 750,000-790,000 boe/d, nearly 5% more than in 2021.
Dividends and leverage
Suncor Energy has already reversed the pandemic’s damage in 2021. Its downstream earnings have been rising due to re-openings and this trend is likely to continue next year.
Suncor made $2.4 billion in profit last year, compared to a $4.3 billion loss in 2020. Following the pandemic, it doubled its dividend in October. SU stock now produces 5.6 percent, among peers.
Suncor Energy’s breakeven price fell from US$45 per barrel in 2015 to US$35 in 2021. Until 2025, it expects breakeven at around $35/b. As a result, higher crude oil prices could boost its free cash flow and margins
Suncor has reduced its net debt by $3.1 billion so far in 2021, as stated previously. Almost 1.7x net debt to EBITDA as of September 30, 2021. The ratio shows how long it would take to pay off a company’s net debt with EBITDA.
Suncor’s leverage appears manageable and not risky given the energy sector’s outlook for next year. But it still outperforms its peers.
Suncor Energy’s vertically integrated operations position it well for volatile oil and gas prices. With its high dividend yield and potential for financial growth, this oil sands behemoth may be an attractive investment given the rising oil price outlook.
Original source material for this article taken from here