Tuesday, May 3, 2011

Suncor Generates Huge Profits From the Oilsands, but Might Have to Take a Loss on Libya.

When Suncor (TSE:SU) bought Petro-Canada, it is doubtful that they anticipated the amount of trouble their Libyan assets would cause the company and its shareholders. Having announced huge profits today of 1.02 billion dollars for the last three months, the company is increasing its dividend by a penny per share. And with cash-flow coming in at 2.4 billion dollars for the quarter, the company has plenty of money to still invest in the expansion of its oil-sands operations. So why is the stock down almost five percent on the news? 
Trouble at its operations in Libya due to the uprising have forced them to reduce production in the country and perhaps even "write-off" or record a loss on the value of its assets there. On it's balance sheet, the Libyan operations are currently valued at about 900 million dollars, but if turmoil in the country continues or gets worse, Suncor will be forced to re-evaluate the value of those holdings.
Essentially, Suncor, operationally, is doing great, and money is pouring into the company, but assets that it holds in both Libya, and now Syria, could be in serious trouble. For investors, this means that on a cash basis, there is nothing to worry about, but there might be an accounting loss in the near future if Libya does not turn around soon. 

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