* 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
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."
(Editing by Rob Wilson)