* Canada's top oil firm expected to be a must-have stock
* Demand for heavyweight shares expected from index funds
* Long-life oil assets also seen as an attraction
By Scott Haggett
CALGARY, Alberta, Aug 2 Suncor Energy Inc (SU.TO), newly bulked up from its C$22.5 billion ($20.8 billion) acquisition of Petro-Canada PCA.TO, starts trading this week as Canada's biggest energy company and what most see as a must-have stock, with the potential for solid gains.
Suncor will be the country's biggest oil company and largest industrial concern, and likely the No. 2 issue on the Toronto Stock Exchange's benchmark index .GSPTSE, with a market cap close to C$55 billion.
Shares of the merged company are expected to begin trading under the ticker SU in Toronto by Aug. 7, or soon after, shortly after their kick-off on the New York Stock Exchange on Aug. 3.
With its greater weighting on the TSX, the beefed-up firm is likely to see early demand for its shares from index funds, which will need to boost their holdings in lock-step with the S&P/TSX composite index. It will also attract big investors that need substantial holdings in large, liquid stock issues.
"By default it is going to be a go-to name for many Canadian investors," said Garey Aitken, chief investment officer at Bissett Investment Management, "It's going to have a large presence in the index and a huge market capitalization."
Suncor's acquisition of what was once Canada's state-owned oil company brings it new offshore oil production from the country's East Coast and from the North Sea as the economy strengthens and commodity prices stabilize. It also adds North American natural gas properties, two additional refineries and the No. 2 retail gasoline brand.
Suncor also gains new oil sands properties to supplement its existing operations in northern Alberta, making it the dominant producer in a region where reserves are second only to Saudi Arabia and promising years of production growth as prices firm from recession-driven lows and conventional reserves become tougher to find.
"Owning long-life oil assets is going be an attraction," said William Lacey, an analyst with FirstEnergy Capital. "The fundamentals for oil look reasonable. If you tell people that oil could be $100 (a barrel) within two years, I don't think many of them would argue with you."
SEEN SHEDDING RISKIER ASSETS
Suncor's management is also expected to shed some of Petro-Canada's riskier international assets. Operations in Libya and Syria seen as a likely candidates for the auction block, with the company putting the proceeds into boosting production from its core oil sands operations.
"Suncor has a strong portfolio of growth opportunities and going forward we'll see it become a much more focused entity," said Chris Feltin, an analyst with Tristone Capital. "There will be much more emphasis from management on developing projects with the highest returns."
Suncor's future earnings power will depend on a rise in oil prices and boosting production from its oil sands operations. But share price growth may hinge on how much investors value the company's profits.
Prior to the crash in oil prices last year and a series of missed production targets and other missteps, Suncor was accorded a premium multiple by investors. That is to say that its shares had greater value per dollar of cash flow than many of its peers.
Some analysts speculate that investors may be willing to again award Suncor shares a premium because of its massive reserves and its ability cut the cost of developing new oil sand projects because of the economies of scale that it will have after acquiring Petro-Canada.
"Suncor once traded at a super premium to other Canadian (oil companies)," Andrew Potter, an analyst with UBS Securities, wrote in a research report. "... Its new balance of should propel Suncor back to its historic premium valuation."
($1=$1.08 Canadian) (Editing by Rob Wilson)