In the late 1990s, I started my career as an oil and gas banker. The best place for an ambitious 20-something to get a lot of high level exposure to big oil and gas transactions was in the wide open frontier markets of the Former Soviet Union. A few years later, in 2002, I was looking at Suncor Energy (SU), a Canadian company that was rapidly ramping up production in the oil sands region of Western Canada. What I liked was the potential for extraordinary operating leverage as long as oil remained above a certain level.
I prepared this analysis. It is a journeyman’s point of view of the economics of Suncor’s oil fields’ development potential as presented through its financial statements. There was a much-ignored risk aspect in that Canadian oil sands carried little geology risk. Plus Canada has low sovereign risk, unlike other huge oil fields scattered around in some of the world’s most unstable political environments. The price (adjusted for splits) at the time of this analysis (July 24, 2002) was $7.85. The stock peaked on May 23, 2008 at $71.11
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