NEW YORK (TheStreet) -- Despite facing declining crude-oil prices and restrictions to markets, Suncor Energy (SU)  is in a better position than other Canadian energy producers, because it can generate more cash than its competitors and use its financial strength to gain access to networks to transport oil out of Alberta.

Suncor will seek to move ahead with major projects, even if Brent prices hover between $80 and $85 a barrel, as it expects "to generate free cash flow", company spokeswoman Erin Ross said in an email to TheStreet, quoting the CEO Steve Williams' comments.

Nick Lupick, an analyst at AltaCorp Capital, forecast in a Nov. 19 report that Suncor will be able to generate positive free cash flow of about $2.48 billion, before dividends and buybacks, He wrote that the figure is the highest in Suncor's peer group, which includes Imperial Oil (IMO) , Canadian Natural Resources (CNQ) and Cenovus Energy (CVE) .

Calgary-based Suncor said last week that it would have between $6.4 and $6.8 billion capital spending in 2015, compared with the current year's estimate of $5.9 billion. That will lead to production of 540,000 to 585,000 barrels of oil equivalents a day, compared with the company's current year's estimate of 525,000 to 570,000 barrel.

Besides its oil-sands operations, Suncor also has profitable oil refining and marketing business, which includes four refineries and which was responsible for 30% of the company's earnings from core operations in the previous quarter.

In an Oct. 30 report, Morningstar analyst Jason Stevens said that since 2011, Suncor has earned refining margins of $25.74 a barrel, higher than the industry's average of less than $24 a barrel.

Suncor's margins, Stevens predicted, could improve in the coming years as the company displaces the supply of the relatively expensive international crude with the cheaper domestic crude at its 137,000 barrels-a-day refinery in Montreal following the expansion of a crude transportation network through 2017. 

Canadian oil-sands producers have been struggling with limited access to lucrative markets that offer better prices, such as the U.S. Gulf Coast. Six years ago, TransCanada proposed to construct its Keystone XL pipeline to address this problem, but the proposal seeking approval of the project became embroiled in a larger debate on U.S. gasoline prices, energy security and jobs creation and was eventually rejected by the U.S. Senate last week.

Suncor is one of the shippers committed to use the Keystone XL pipeline and should benefit if the project gets approved. The company, however, can use its cash to transport its crude across North America using other pipelines, railways and ships, Stevens said.

For instance, there are two major planned pipeline projects that could come online before the end of the decade, TransCanada's Energy East and Enbridge's ENB Northern Gateway. Those pipelines would allow Suncor to ship its crude oil to refineries at the Canadian Eastern and Western coasts.

Although both of these pipelines are also having a difficult time in getting the regulatory approvals, unlike Keystone XL, these projects are located in Canada and so they won't need U.S. approval.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.


TheStreet Ratings team rates SUNCOR ENERGY INC as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:

"We rate SUNCOR ENERGY INC (SU) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels, good cash flow from operations and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

You can view the full analysis from the report here: SU Ratings Report

At the time of publication, the author held no positions in any of the stocks mentioned.

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