Docstoc

PowerPoint Presentation - SFU Business

Document Sample
PowerPoint Presentation - SFU Business Powered By Docstoc
					The Canadian Oil and Gas Industry



        BUS 417: Group Presentation

                Mahmoud Houshmand
                     Francis Santos
                            Ian Graf
                            November 10, 2004

     Canadian Oil and Gas                   1
Presentation Overview

   Industry Analysis
     Industry Analysis and Regulation: Ian
     Supply and Demand: Mahmoud
     Oil Extraction and Refining Explained: Francis



   Company Analysis and Recommendations
     Canadian Oil Sands: Mahmoud
     Petro-Canada: Ian
     Suncor: Francis




                     Canadian Oil and Gas              2
                  Industry Analysis


Canadian Oil and Gas              3
Industry Analysis Agenda

   Industry Structure
   Products
   Regulation
   Supply and Demand
   Brief Overview of Oil Extraction and Refining




                   Canadian Oil and Gas             4
Industry Analysis

   Canadian industry produced $77.5 billion in revenues in 2003

   Canada is 3rd largest producer of natural gas in the world
       9th largest producer of crude oil


   Canadian upstream sector is largest single private investor




                        Canadian Oil and Gas                       5
Industry Analysis

   In 2003, the industry contributed approx. $16 billion to
    government revenues

   Crude oil & natural gas trade surplus responsible for 57% of
    the country’s 2003 merchandise trade balance

   Canada responsible for over 20% of North America’s crude oil
    and natural gas

   However, we only consume 10%

   Industry’s total 2003 employment impact was measured at
    500,000

                    Canadian Oil and Gas                           6
Industry Structure

   Industry consists mainly of miners & drillers, refiners, and
    retailers

   Many businesses take an integrated approach and are
    involved in all aspects

   Business is done locally and south of the border; utilize cross-
    border pipeline to distribute oil

   Country’s largest source of crude oil is the Canadian Oil
    Sands

   American VP Dick Cheney described Canada’s oil sands as a,
    ”pillar of North American energy and economic security.”
                      Canadian Oil and Gas                   7
Industry Structure

   Mergers & acquisitions are frequent

   Recent growth in royalty trusts (unit trusts)

   Highly regulated by Canadian government

   Affected by volatile oil prices, interest rate fluctuations,
    international events




                     Canadian Oil and Gas                          8
Industry Structure

   Largest Canadian Oil & Gas Companies (in alphabetical
    order):
       Albian Sands Energy Inc.
       Canadian Natural Resources Ltd.
       Canadian Oil Sands
       EnCana Corporation
       Husky Energy Inc.
       Imperial Oil Resources Ltd.
       Petro-Canada
       Shell Canada Ltd.
       Suncor Energy Inc.
       Syncrude Canada Ltd.




                      Canadian Oil and Gas                  9
Products

   Crude oil
        Refined to create petroleum gas, gasoline, kerosene, lubricating oil,
        industrial fuel, residuals


   Natural gas
       Used commercially, residentially, in fuel cells, building block for
        methanol which has many industrial purposes


   Ethanol
       Normally made from fermentation process but is cheaper when
        processed from petroleum feedstock


   Green Energy Sources
       Wind energy



                        Canadian Oil and Gas                                     10
Regulation

   Four intertwining levels; municipal, provincial, national, &
    international
   Constitution Act 1982 gives jurisdiction to provinces over natural
    resources
   Natural Energy Board (Fed body) has control over movement of
    oil & gas, taxation, and tariffs
   Department of energy collects royalties on behalf of the province
   Companies must adhere to applicable provincial environmental
    acts and involve the public in process
   Extraction limits
   OSC requires companies to declare their reserve levels every 90
    days
   Controls to reduce emissions  Kyoto Accord
   Sept 11th called for increasing security of pipelines

                    Canadian Oil and Gas                                 11
Crude Oil : Supply

   World Crude Oil Production By Region




                   Canadian Oil and Gas    12
Crude Oil : Demand




              Canadian Oil and Gas   13
Crude Oil : Exports

   Crude oil exports have been growing in North America




                   Canadian Oil and Gas                    14
Canadian Crude Oil : Supply




   Second largest crude oil reserves after Saudi Arabia
   Canadian oil sands contains 175 billion barrels of oil reserves
   420,000 barrels of crude have been approved off Canada’s east
    coast
                     Canadian Oil and Gas                             15
Canadian Oil Production & Consumption




              Canadian Oil and Gas      16
Natural Gas : Reserves




               Canadian Oil and Gas   17
Natural Gas : Supply




               Canadian Oil and Gas   18
Natural Gas : Demand




              Canadian Oil and Gas   19
Refined Products




             Canadian Oil and Gas   20
Crude Oil Prices




               Canadian Oil and Gas   21
Price of Oil Futures: One Year Chart




               Canadian Oil and Gas    22
Oil Extraction

   Canadian Oil Sands
    1. Mining:
       Oil that is near the surface can extracted using traditional techniques


    2. SAGD: Steam Assisted Gravity Drainage
        Because of the rising prices of natural gas, crude producers are moving
        towards using bitumen or high sulphur fuels to generate steam.


   Natural Gas
       Wells are drilled and gas flows under its own pressure.




                       Canadian Oil and Gas                                       23
Oil Refining

   Steps
    1. Fractional Distillation
    2. Conversion
    3. Recombination
    4. Treatment




                     Canadian Oil and Gas   24
               Canadian Oil Sands


Canadian Oil and Gas            25
Canadian Oil Sands Agenda

   Company Background
   Core Business
   Business Strategy
   Hedging Strategy
   Financial Statement Analysis
   Stock Price Performance
   Recommendation




                   Canadian Oil and Gas   26
Background

   Canadian Oil Sands acts as a middleman between oil producers and
    pipeline operators.
        Takes possession of the oil and markets it to pipelines

   Generates income from a 35% interest in the Syncrude operation in
    the Alberta Oil Sands.
        Largest pure-play investment opportunity in Oil Sands.

   Organized as an Open-Ended Investment Trust.
        Currently has approximately 91.1 million units outstanding.
        Traded on TSX (Ticker COS.UN)
        Market Capitalization of approximately $5.8 Billion
        Distributions in 2003 totaled $2.00 per unit


                          Canadian Oil and Gas                          27
Core Business

   Income trusts are equity investments designed to deliver cash
    flows from operations to shareholders in a tax-efficient
    manner.
       Reduces double taxation of income.
   Core business is marketing oil from its 31% share of Syncrude
    oil.
       Pure-play oil company. Revenues derived solely from selling crude oil.




                       Canadian Oil and Gas                                      28
Business Strategy

   Expand Syncrude Production Capacity
       Expansion began in 2001.
       Expected to boost current production by 50% to approximately 350,000
        barrels per day – 124,000 barrels per day net to Canadian Oil Sands
        Trust. based on its interest.
       Product quality will also be enhanced to Syncrude Sweet Premium
        (SSP).
       The total capital budget for the expansion is estimated at $7.8 billion, or
        approximately $2.8 billion net to the Trust.
       It is expected to be in-service by mid 2006.




                        Canadian Oil and Gas                                          29
Corporate Value Drivers

   Increase production capacity from existing assets.

   Reduce operating costs of existing assets through economies
    of scale and by upgrading process technologies.

   Increase reserves (asset base) by pursuing new
    developments.




                   Canadian Oil and Gas                           30
Reserves

   Very long-life reserves compared to industry
    average.
       Thus, disbursements in income trust are quite safe.




                       Canadian Oil and Gas                   31
Factors That Affect Financials

   Ongoing volatility of CDN/US exchange rates
   Ongoing volatility of global and North American oil markets
   New introduction of crude oil supply to North America
   Ongoing variability in refining & retail margins
   Unscheduled maintenance shutdowns
   Oils Sands Alberta Crown Royalties
   Suncor ability to compete for projects
   Extreme cold weather in 4Q




                   Canadian Oil and Gas                           32
Hedging Strategy

   Value of revenues is dependent on:
       Price of crude oil
       Exchange rate with USD
       Interest rate on debt

   Crude Oil Hedging
       Lost $82M in revenues in Q3 2004 ($10.22 per barrel).
       YTD 2004 – have incurred a $182M loss.




                        Canadian Oil and Gas                    33
Hedging Strategy (continued)

   Crude Oil Hedging (continued)
       As the funding requirements for expansion diminish (and balance sheet
        becomes stronger due to Stage 3 revenues), they intend to reduce crude
        oil hedging

   Foreign Exchange Hedging
       Q3 2004 made $3M in foreign exchange hedging ($0.39 per barrel).




   Interest Rate Hedging
       Impact cash flows based on amount of floating rate debt that is
        outstanding.


                       Canadian Oil and Gas                                     34
Consolidated Balance Sheet




              Canadian Oil and Gas   35
Balance Sheet Analysis

   The trust increased its capital assets by $2.5 billion during 2003
    (stage 3 expansion).
   Capital assets are recorded at cost and include the costs of
    acquiring the working interest and subsequent additions to property,
    plant, and equipment.
   In February 2003, the trust gained $ 732 million in new equity to
    finance a significant portion of the 10 percent working interest in
    Syncrude from EnCanca. In July 2003, an additional $220 million
    was raised.
   The long term debt increased by $ 810 million.




                     Canadian Oil and Gas                                  36
Consolidated Statement of Earnings




               Canadian Oil and Gas   37
Income Statement Analysis

   Revenues higher due to increased oil prices.
   Operating expense increased by $ 200 million mainly because
    of an unplanned coker turnaround and expended
    maintenance work.
       Coker : Vessels in which bitumen, the molasses-like substance that
        comprises up to 18% of oil sand, is cracked into its fractions and from
        which coke is withdrawn to start the process of converting bitumen to
        upgraded crude oil.
   Coker maintenance resulted in a 24 cent increase in operating
    cost per barrel in 2003.
   The trust lost $135 million as a result of hedging.




                        Canadian Oil and Gas                                      38
Stock-based Compensation

   Before Q3 of 2003, Canadian Oil Sands recorded no
    compensation costs for unit options granted to its employees
    and directors.
   The Canadian Institute of Chartered Accountants modified the
    rules for stock-based compensation program.
   During the third quarter of 2003, Canadian Oil Sands adopted
    the fair-value method of accounting for stock based
    compensation.
   Compensation costs of $0.6 million have been included as
    Administration expenses in the company’s net income.




                   Canadian Oil and Gas                        39
Statement of Cash Flow




              Canadian Oil and Gas   40
Cash Flow Statement Analysis
   Free cash flow amount to –2 billion dollars for 2003, due to
    the acquisition of Syncrude working interest.

     On February 28, 2003, Canadian Oil Sands closed the acquisition With
      EnCana Corporation to purchase an indirect 10 percent working interest
      in Suncrude for approximately $1.05 billion cash
     On July 10, 2003, Canadian Oil Sands purchased EnCana’s remaining
      3.75 percent interest in Syncrude for $430 million cash
     The acquisition is treated as a purchase of asset under GAAP




   Cash flow from operating activities decreased due to a $147
    million foreign exchange loss on long-term debt


                     Canadian Oil and Gas                                      41
Financial Strength Ratios

                           Canadian Oil   Industry Average
                              Sands         Present Day
                           Present Day
       Price to Earnings      11.20            21.90

        Dividend Yield        3.58%            2.10%

        Price to Book          2.01             2.10

        Debt to Equity         0.69             0.89




                   Canadian Oil and Gas                      42
Stock Price Summary

   Traded on TSX
       Symbol: COS.UN
       Current Price $55.79 CDN
       91.1 million units outstanding
       Market Capitalization of approximately $5.1 Billion



     Current         Change:        Open:      High:     Low:     Volume:
     Price:                          56.38      56.38     55.40    311,590

     55.79           -0.61
                     Percent        Yield:     P/E       52 Week Range:
                     Change:         3.58%     Ratio:     38.65 to 65.65
                      -1.08%                    11.23



                        Canadian Oil and Gas                                 43
Stock Price Performance: One Year Chart




               Canadian Oil and Gas       44
Stock Price Performance: Five Year Chart




               Canadian Oil and Gas        45
Stock Price Performance Vs.
Oil & Gas Index: One Year Chart




               Canadian Oil and Gas   46
Recommendation




                     BUY




            Canadian Oil and Gas   47
                       Petro-Canada


Canadian Oil and Gas              48
Petro-Canada Agenda

   Company Background
   Management Team and Executive Compensation
   Core Business Units
   Business Strategy
   Corporate Value Drivers
   Reserves
   Hedging Strategy
   Financial Statement Analysis
   Stock Price Performance
   Recommendation




                 Canadian Oil and Gas            49
Company Background

   Petro-Canada was established in 1975 as a Crown
    Corporation
       Privatized in 1991; final government stake sold in September 2004


   One of Canada’s largest integrated oil and gas companies
       Produces 464,500 barrels of oil equivalent per day (2003)
       Earnings from operations (2003): $1.6 Billion
       More than 4,500 employees across Canada and internationally


   Publicly traded on TSX (PCA) and NYSE (PCZ)
     Stock price of $63.60 (Friday close)
     262,100,000 shares outstanding
     Net capitalization exceeding $16 Billion


   Headquartered in Calgary, Alberta                   *All dollar figures in CDN dollars

                       Canadian Oil and Gas                                        50
Management Team

   Ron A. Brenneman, President & CEO.
       CEO since 2000. Over 30 years of experience in the oil industry. Past
        CEO of Esso Benelux and past president of Imperial Oil.
   Harry Roberts, Senior VP & CFO.
       15 years experience with Petro-Canada and 15 years experience
        working in the financial industry.
   Kathleen E. Sendall, Senior VP for North American Gas.
       Over 25 years experience with Petro-Canada.
   Gordon Carrick, VP for East Coast Oil.
       Over 25 years experience in the oil industry; 23 with Petro-Canada.
   Brant Sangster, Senior VP for Oil Sands.
       Over 35 years experience in the oil industry; over 20 with Petro-Canada.



                       Canadian Oil and Gas                                     51
Management Team (continued)

   Peter S. Kallos, Executive VP for International.
       Over 20 years experience in the oil industry. Joined Petro-Canada in
        2003.
   Boris Jackman, Executive VP for Downstream.
       Over 10 years experience with Petro-Canada.


   Common thread amongst senior management is their
    extensive experience with the company.
   Philip Fisher’s Four Dimensions - The “People Factor”
       “Attention must be paid to attracting competent managers at lower levels
        and to training them for larger responsibilities. Succession should largely
        be from the available talent pool.” (p. 379)




                        Canadian Oil and Gas                                      52
Executive Compensation

   Base salary
        Competitive pay based on comparator group of companies.


   Annual performance incentives
      Based on degree of achievement of specific predetermined corporate,
       business unit, and individual objectives.
      Executives may choose to receive all or part of incentive in stock.


   Stock options
        Annual awards of stock options link compensation to creation of
         shareholder value.

    “During the fourth quarter of 2003, the Company elected to begin prospectively expensing,
    effective January 1, 2003, the value of stock options pursuant to transitional accounting
    provisions. As a result, the fair value of stock options granted during 2003 is being charged
    to earnings over the vesting period with a corresponding increase in contributed surplus.
    The effect of this change for the year ended December 31, 2003 was a decrease in net
    earnings of $9 million.”
                           Canadian Oil and Gas                                                 53
Executive Compensation (continued)




             Canadian Oil and Gas    54
Executive Compensation (continued)




             Canadian Oil and Gas    55
Core Businesses Units

   North American Gas
     Explores for, produces, and markets natural gas.
     Exploration operations in Western Canada (Alberta, Northeastern BC).
     Produces 132,300 BOE per day (28% of company total)


   East Coast Oil
     Explores for, produces, and markets oil from offshore Newfoundland
      (Terra Nova, Hibernia).
     Produces 86,100 BOE per day (19%)


   Oil Sands
     Heavily involved in Alberta’s oil sands.
     100% interest in the MacKay River operation and 12% interest in
      Syncrude operation.
     Produces 36,100 BOE per day (8%)


                     Canadian Oil and Gas                                    56
Core Businesses Units (continued)

   International
     Explores for, produces, and markets oil and natural gas from Northwest
      Europe, North Africa/Near East, and Northern Latin America.
     Produces 210,000 BOE per day (45%)


   Downstream Operations
       Refining
          Converts crude oil into refined products (gas, diesel, lubricants).
          Controls 17% of Canada’s refining capacity.
       Marketing
          Markets petroleum products and services nationwide in Petro-Canada service
           stations.
          Second largest marketer of refined petroleum in Canada (17% market share).




                          Canadian Oil and Gas                                          57
Contribution of Business Units
(Production - BOE/d)


                           Oil Sands
                               8%


          East Coast Oil
               19%
                                       International
                                            45%




              North American
                Natural Gas
                    28%




                   Canadian Oil and Gas                58
Contribution of Business Units
(Earnings)


                  Downstream
                   Operations
                      15%

                                                   East Coast Oil
                                                        36%

         International
              18%




                          North American
                            Natural Gas
                                31%


         *In 2003 the Oil Sands business earned a loss of 50M (–3%)


                   Canadian Oil and Gas                               59
Business Strategy

   North American Gas: Strategic Goals
       Maximize profitability in Western Canadian properties by increasing
        exploration and drilling in core areas.
            Future Action: Focus exploration and drilling in core areas.
       Pursue high-potential exploration plays such as the Mackenzie Delta,
        Alaska, and offshore Nova Scotia.
            Future Action: Continue to evaluate Mackenzie Delta and Alaska properties in
             preparation for future pipeline construction.
       Pursue market expansion into liquefied natural gas (LNG)
            Future Action: Commence construction on LNG facility in Cacouna, PQ;
             agreement to import LNG from Russia




                           Canadian Oil and Gas                                             60
Business Strategy (continued)

   East Coast Oil: Strategic Goals
       Expand oil production base in offshore Newfoundland.
            Future Action: Continue evaluating growth opportunities in Terra Nova and
             Hibernia.
       Pursue high-potential exploration plays
            Future Action: Continue White Rose development, targeting start-up in early
             2006.




                           Canadian Oil and Gas                                            61
Business Strategy (continued)

   Oil Sands: Strategic Goals
     Continue developing reserves as market condition evolve.
     Expand Syncrude operations.
            Future Action: Continue third phase of Syncrude expansion.
       Expand and upgrade refining capabilities.
            Future Action: Commence improvement of Edmonton refinery from
             conventional crude oil refinery to bitumen refinery.


   International: Strategic Goals
       Continue developing existing International reserves.
            Future Action: Continue exploration in the U.K./Netherlands North Sea.
       Target new theatres of operations.
            Future Action: Where attractive, bid on Middle East developments.


   Downstream Operations: Strategic Goals
       Focus on generating superior returns by leveraging brand strength
                           Canadian Oil and Gas                                       62
Corporate Value Drivers

   Increase production capacity from existing assets.

   Reduce operating costs of existing assets through economies
    of scale and by upgrading process technologies.

   Increase reserves (asset base) by pursuing new
    developments.




                  Canadian Oil and Gas                       63
Reserves

   Evaluating natural resource companies must
    take into account their ability to replenish
    their assets.

   Petro-Canada boasts 1.220 Billion BOE in
    proven reserves.
       At current production this will last 7 years.




                       Canadian Oil and Gas             64
Factors that Affect Financials

   Ongoing volatility of CDN/US exchange rates
   Ongoing volatility of global and North American oil markets
   New introduction of crude oil supply to North America
   Ongoing variability in refining & retail margins
   Unscheduled maintenance shutdowns
   Oil Sands Alberta Crown Royalties
   Ability to compete for projects
   Extreme cold weather in 4Q
       Cannot produce in very cold temperature




                      Canadian Oil and Gas                        65
Hedging Strategy

   Commodity Prices
     Significant risk exposure to price of crude oil and natural gas.
     Petro-Canada typically does not hedge this exposure.


   Foreign Exchange
       Petro-Canada’s expense and revenue streams are highly affected by the
        CDN/USD exchange rate
       Partially offset because of integrated business; however, earnings are
        negatively affected by the strengthening CDN dollar.
       Petro-Canada does not hedge this currency exposure.




                       Canadian Oil and Gas                                  66
Balance Sheet




                Canadian Oil and Gas   67
Balance Sheet (continued)

   Assets
       Increase in cash on hand by $400M; sign that company is not rushing into
        imprudent investments.




       Property, plant, and equipment form more than two-thirds of asset value.
            Very capital intensive.

       Goodwill increased due to the acquisition of International oil and gas
        produced Veba Oil & Gas GmbH.

                             Canadian Oil and Gas                                  68
Balance Sheet (continued)

   Liabilities
        Current portion of long-term debt decreased by $350 million
        Overall long-term debt decreased by $500 million
             Cancelled loans outstanding to provide acquisition credit for Veba Oil & Gas GmbH.
             Also, this is a sign that the company is plowing exceptional earnings into actively
              recalling debt.




                             Canadian Oil and Gas                                               69
Balance Sheet (continued)

   Equity
       Increased by $2 Billion in 2003; almost all attributable to increase in retained
        earnings
       Retained earnings increased by $1.5 Billion dollars per quarter.
       Since dividends increased as well (from $0.10 to $0.15 per share), we know
        that the increase in retained earnings is due to higher profits




                         Canadian Oil and Gas                                          70
Income Statement




             Canadian Oil and Gas   71
Income Statement (continued)

   Revenue
       Dramatic increase in revenues from 2002 to 2003.
          Expanded operations
          Higher oil prices
       YTD 2004 revenues are $10,880M.


   Expenses
     Crude oil purchases (sell their own crude oil, buyback crude oil for
      refining closer to distribution points).
     Exploration expense decreased slightly year-over-year.


   Earnings
       Increase in net earnings and EPS is a function of high oil prices in
        conjunction with the fact that Petro-Canada does not hedge commodity
        prices.


                       Canadian Oil and Gas                                    72
Statement of Cash Flows




             Canadian Oil and Gas   73
Statement of Cash Flows (continued)

   Property, Plant, and Equipment
       Spent $500M on PPE during 2003 – large increase in International
        investment




                       Canadian Oil and Gas                                74
Statement of Cash Flows (continued)

   Free Cash Flow: CFO – CFI
                         YTD 2004         2003          2002       2001

    Free Cash Flow         -$239         $1,005        -$2,107     $275


   YTD 2004 FCF negative due to acquisition of Prima Energy
    Corporation ($644M).
   2002 FCF negative due to acquisition of Veba Oil & Gas GmbH
    (spent $2.2 Billion)
       Growth of acquisition helped fuel high cash flow in 2003




                       Canadian Oil and Gas                               75
Financial Strength Ratios



                           Petro-Canada   Industry Average
                            Present Day     Present Day
       Price to Earnings      11.90            21.90

        Dividend Yield        0.94%            2.10%

        Price to Book          2.14             2.10

        Debt to Equity         0.30             0.89

      Earnings per Share       5.63             4.30




                   Canadian Oil and Gas                      76
Stock Price Summary

   Stock Price (Friday Close)
     $63.60 CDN (TSX)
     $53.10 USD (NYSE)



   TSX Data for Friday, November 5th
       Last Traded: $63.60
       Net Change: -$0.74 (-1.15%)
       Volume: 1,858,222
       52 Week High: $70.40
       52 Week Low: $54.50




                      Canadian Oil and Gas   77
Stock Price Summary (continued)

                 Net Change:
C$ 63.600        C$ -1.150             % Change: -1.15%


Volume          1,913,600      P/E             11.90

52-Week High    70.400         Indicated       0.60
                               Annual Div.

52-Week Low     53.800         Yield           0.94




               Canadian Oil and Gas                       78
Stock Price Performance: One Year Chart




                                     *Based on TSX Data (CDN dollars)

              Canadian Oil and Gas                              79
Stock Price Performance: Five Year Chart




                                     *Based on TSX Data (CDN dollars)

              Canadian Oil and Gas                             80
Stock Price Performance Vs.
Oil & Gas Index: One Year Chart




                            *Based on NYSE Data (PCZ and Oil & Gas Index)

              Canadian Oil and Gas                                 81
Stock Price Performance Vs.
S&P 500: One Year Chart




                               *Based on NYSE Data (PCZ and S&P 500)

              Canadian Oil and Gas                             82
Recommendation




                     BUY




            Canadian Oil and Gas   83
                       Suncor Energy


Canadian Oil and Gas               84
SunCor Agenda

   Company Background
   Management Team
   Core Business Segments
   Business Strategy
   Corporate Value Drivers
   Reserves
   Hedging Strategy
   Financial Statement Analysis
   Stock Price Performance
   Recommendation




                   Canadian Oil and Gas   85
Company Background

   Suncor Energy is an integrated energy company.
       Formed in 1979 as a result of an amalgamation of several operations.


   Focused on developing the Athabasca Oil Sands: one of the
    world’s largest petroleum resource basins.
       2004 YTD earnings are $337 million.
       Produces 264,900 barrels of oil per day
       4,000 employees


   Listed on both the TSX and NYSE (Ticker SU).
       $39.88 CDN per share (Tues close)
       453,420,617 shares outstanding
       Net capitalization exceeding $18 Billion CDN


   Headquartered in Calgary, Alberta.
                       Canadian Oil and Gas                                    86
Management Team

   Richard L. George, President and CEO
       23 years experience at Suncor; 13 years as CEO.
   J. Kenneth Alley, Sr. VP and CFO
       19 years experience at Suncor.
   Steven W. Williams, Exec. VP, Oil Sands
       Over 20 years of international energy industry experience.
   David W. Byler, Exec. VP, Natural Gas & Renewable Energy
       24 years experience at Suncor.
   Thomas L. Ryley, Exec. VP, Energy Marketing and Refining
       20 years experience at Suncor.
   M. (Mike) Ashar, Exec. VP, Refining and Marketing USA
       16 years experience at Suncor. Previous experience with Petro-Canada.




                       Canadian Oil and Gas                                 87
Management Compensation




             Canadian Oil and Gas   88
Core Business Segments

   Oil Sands
       Operating in Canada’s Athabasca Oil Sands, Alberta
       Oil is part of bitumen; can be extracted by mining and by in-situ (onsite)
       Surface mines produce majority of crude oil but in-situ processes are
        expanding


   Natural Gas
       Extracted through pressurized wells


   Energy Marketing & Refining (Canada)
     Refine bitumen feedstock and natural gas and market it to customers in
      Ontario, Quebec, Northeastern USA
     Sunoco chain of service stations in Ontario
     Refinery based in Sarnia, Ontario




                       Canadian Oil and Gas                                      89
Core Business Segments (continued)

   Energy Marketing & Refining (USA)
       In August 2003, Suncor acquired a Denver refinery and 43 Phillips 66
        service stations.
       Expansion gives Suncor greater ability to move oil products to
        American markets.


   Renewable Energy
       Two projects in Canada




                      Canadian Oil and Gas                                     90
Contribution of Business Units
(Earnings)


                                          Energy Marketing &
                     Energy Marketing &
                                            Refining (USA)
                      Refining (Canada)
                                                  2%
                              5%
      Natural Gas & Renewable
               Energy
                12%




                                                           Oil Sands
                                                              81%




                       Canadian Oil and Gas                            91
Business Strategy

   Athabasca Oil Sands
     Next major goal is a targeted production capacity of 260,000 bpd by
      late 2005
     Focus on efficient operations and management to maintain low crude
      oil production costs
     Suncor continually will pursue new technology that will reduce
      operating costs and environmental impact
      - Expanding oil sands operation is a priority
      - Planned 2007 expansion of Steepbank Mine, Fort McMurray, Alberta
      - Expansion of the second upgrader along with a third one on 2010
      - Maintain oil sands cash operating costs at an annual average of
      $10.75 to $11.75 per barrel




                    Canadian Oil and Gas                                    92
Business Strategy (continued)

   Natural Gas
       Suncor has found a solution to deal with high natural gas prices
       Strategy is to exceed natural gas purchases for internal consumption
       Functions as a price hedge

   Energy Marketing & Refining (Canada)
       Project Genesis: Sarnia refinery is investing in equipment to produce
        lower sulphur diesel
        Helps to increase company’s ability to manufacture environmentally
        friendlier products to meet demand

   Energy Marketing & Refining (USA)
       Looking to further integrate products and services within the US,
        branching out from Denver, Colorado.




                       Canadian Oil and Gas                                     93
Business Strategy (continued)




               Canadian Oil and Gas   94
Corporate Value Drivers

   Increase production capacity from existing assets.

   Reduce operating costs of existing assets through economies
    of scale and by upgrading process technologies.

   Increase reserves (asset base) by pursuing new
    developments.

   Be a first-mover in new energy technologies such as wind.




                   Canadian Oil and Gas                           95
Reserves

   Company has an estimated 12 billion barrels of crude on hand
    that can be refined to produce approximately 10 billion barrels
    of oil.
       At current production this will last 10 years.




                        Canadian Oil and Gas                      96
Factors That Affect Financials

   Ongoing volatility of CDN/US exchange rates
   Ongoing volatility of global and North American oil markets
   New introduction of crude oil supply to North America
   Ongoing variability in refining & retail margins
   Unscheduled maintenance shutdowns
   Oils Sands Alberta Crown Royalties
   Ability to compete for projects
   Extreme cold weather in 4Q




                   Canadian Oil and Gas                           97
Hedging Strategy

   Commodity Hedging Activities
     Company utilizes commodity based forwards, futures, swaps and
      options.
     Board authorized the hedging of 35% of crude oil volume in 2004 and
      up to 30% for 2005-2007.
     In 2003, hedging reduced net earnings by $155 million.
     As of Q1, 2004, the BoD suspended the crude oil hedging program and
      no new contracts were entered in Q2 or Q3.
   Financial Hedging Activities
     Employs interest rate and cross-currency swaps
     Interest rate swaps involve the exchange of floating rate and fixed rate
      interest payments
     Cross-currency swaps involve the exchange of CDN dollar interest
      payments and US dollar interest payments, and an exchange of the
      principal amounts at the maturity date of the underlying security.



                      Canadian Oil and Gas                                       98
Hedging Strategy




              Canadian Oil and Gas   99
Income Statement




              Canadian Oil and Gas   100
Income Statement (continued)




              Canadian Oil and Gas   101
Balance Sheet




                Canadian Oil and Gas   102
Balance Sheet (continued)

   $1 Billion increase in PPE during 2003 due to acquisitions




                   Canadian Oil and Gas                          103
Balance Sheet (continued)


   Retained earnings went up by $ 1 billion and dividends have
    remained fairly stable
   We can infer that Suncor is pumping most of their money back
    into the company




                   Canadian Oil and Gas                        104
Statement of Cashflows




              Canadian Oil and Gas   105
Statement of Cash Flows (continued)

   Free Cash Flow: CFO – CFI
                       YTD 2004       2003        2002         2001

    Free Cash Flow       $338         $516        $595         -$868


   2003 FCF fell from 2002 due to investment in new refinery and new
    retail stations & business
   2001 FCF negative due to a large restructuring of natural gas
    business
   YTD 2004 FCF was not as drastically improved by high oil prices
    because Suncor invested a large amount in upgrading and
    expanding their extraction and refining operations as well as opening
    a new wind power facility




                     Canadian Oil and Gas                              106
Financial Strength Ratios



                             SunCor      Industry Average
                           Present Day     Present Day
       Price to Earnings      16.50           21.90

        Dividend Yield       0.60%            2.10%

        Price to Book         3.94             2.10

        Debt to Equity        0.51             0.89

      Earnings per Share      2.42             4.30




                   Canadian Oil and Gas                     107
Income Statement YTD




             Canadian Oil and Gas   108
Balance Sheet YTD




              Canadian Oil and Gas   109
Statement of Cashflows YTD




              Canadian Oil and Gas   110
Stock Price Summary (continued)

                 Net Change:
C$ 39.68         C$ -0.02              % Change: -0.5%


Volume          617, 100       P/E             16.40

52-Week High    44.49          Indicated       0.24
                               Annual Div.

52-Week Low     27.00          Yield           0.60




               Canadian Oil and Gas                      111
Stock Price Performance:
One Year Chart (TSX)




              Canadian Oil and Gas   112
Stock Price Performance:
Five Year Chart (TSX)




              Canadian Oil and Gas   113
Recommendation




                    BUY




            Canadian Oil and Gas   114
                       Summary


Canadian Oil and Gas         115
Summary




   BUY            BUY            BUY




          Canadian Oil and Gas         116
Questions




            Canadian Oil and Gas   117

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:4
posted:4/22/2012
language:
pages:117