Share buybacks signal uncertain future for Suncor growth projects
The oil sands stalwart is choosing other tools to keep shareholders happy
During a second quarter earnings call in July, Suncor Energy Inc. president and CEO Steve Williams made it clear the company was going to do all it could to make its shareholders happy in the near future. “For the first time in our history,” Williams said, “we are in a position not only to grow our production significantly, but also steadily grow the cash we return to shareholders.”
Williams has made good on that promise, as the company announced this week that it was buying back $1 billion worth of shares.
While share buybacks provide quick rewards to shareholders, there is debate in the investment community about whether the move is the best use of a company’s cash.
Some analysts view share buybacks as a sign that management hasn’t found more attractive ways to invest their cash. It can also be seen as a sign the company isn’t confident in investing capital in some of its growth projects.
For Suncor, three of these projects are the proposed Joslyn North and Fort Hills mines and the Voyageur upgrader – all part of a joint venture with Total E&P Canada.
In the aforementioned second quarter earnings call, Williams cast considerable doubt on when the projects would be sanctioned and built.
In a research note to clients yesterday, CIBC World Markets Inc. analyst Andrew Potter expects that Suncor will not only buy back shares over the next 12 months but will also look to increase its dividend in the “20 per cent range.”
And if it does that, Potter thinks Suncor will slow the pace of developing the Joslyn North, Fort Hills and Voyageur projects.
The wild card that could lead to bigger dividend increases is the decision on growth plans, specifically Fort Hills, Joslyn, and Voyageur. On the current growth plan, capex on these projects could be approximately $3 billion/year. Any meaningful pushback in the timing of these capital projects would reduce Suncor’s medium-term spending obligations and open the door to larger dividend increases.