CALGARY, Alberta - Some of the largest hedge funds are betting heavily that high oil prices are here to stay as they have added to stakes in Suncor Energy Inc (SU.TO), one of the large-cap energy stocks most sensitive to the price of oil.
Among those increasing their stakes in the third quarter were George Soros' Soros Fund Management LLC, which snapped up an additional 2 million shares, and Richard Chilton's Chilton Investment Co, which added 42,000 shares, according to data compiled by Thomson Reuters.
Suncor, fresh off its C$22.5 billion ($21.4 billion) friendly acquisition of Petro-Canada, is one of the largest owners of oil sands in the world -- as much as 22 billion barrels' worth, or almost 3 billion barrels more than the entire proven oil reserves of the United States.
But because oil in the Canadian sands is among the most difficult and expensive to extract, Suncor's value can seesaw dramatically as the price of oil rises and falls. Back in May 2008, as oil was hitting $120 a barrel, Suncor's stock topped $70 only to tumble below $20 six months later when the price of oil collapsed. The stock has since climbed back to $37.
"Suncor is viewed as among the companies best-levered to oil prices," said Chris Feltin, an analyst at Macquarie Securities Canada. "It provides the highest leverage to increasing or decreasing oil prices."
That leverage has attracted plenty of buyers to Canada's largest energy producer. Suncor was the most popular new purchase in the third quarter among the largest equity hedge funds, according to data compiled by Thomson Reuters.
Along with Soros and Chilton, Diamondback Capital Management LLC and other funds also boosted their Suncor stakes over the quarter, with Diamondback adding 386,000 shares. Representatives of those funds declined comment or could not be reached.
"By its sheer size, it attracts a lot of attention," said William Lacey, an analyst at FirstEnergy Capital. "But it also has its focus and its go-forward growth plan within the oil sands business."
Buying Petro-Canada, a once state-owned oil company whose shares had suffered as it expanded globally and repeatedly failed to meet profit forecasts, brought Suncor two new Canadian refineries, the second-largest chain of retail gas stations and new oil and natural gas production in Canada, the United States, the North Sea and elsewhere.
But the driver behind the deal was the heft the expanded company brought to the oil sands of northern Alberta. After completing planned asset sales of C$2 billion to C$4 billion ($1.9 billion to $3.8 billion), 65 percent of Suncor's production will come from oil sands, up from 50 percent now, Chief Executive Rick George said last month.
Canada's oil sands have the largest oil reserve outside the Middle East but exploiting the resource is expensive and technically challenging.
The multibillion-dollar oil sands projects have been buffeted by severe inflation, with costs rising 50 percent or more from their original budgets, as producers competed for scarce materials and skilled labor.
The rampant inflation and technical challenges make the oil sands one of the most expensive sources of oil. More than C$100 billion worth of projects planned for the region were canceled, delayed or deferred after oil prices plunged last year because of the recession.
But Suncor's new size brings economies of scale. The company estimates that buying Petro-Canada shaved C$400 million in combined operating costs and saved C$1 billion in capital expenditures, along with giving the market power to command lower costs from suppliers.
The company, which expects to produce 300,000 barrels of oil per day from its oil sands operations, said in November it aims to boost production by as much as 12 percent per year through 2020 and make a 15 percent profit from its operations with oil prices at $70 per barrel.
Among those increasing their stakes in the third quarter were George Soros' Soros Fund Management LLC, which snapped up an additional 2 million shares, and Richard Chilton's Chilton Investment Co, which added 42,000 shares, according to data compiled by Thomson Reuters.
Suncor, fresh off its C$22.5 billion ($21.4 billion) friendly acquisition of Petro-Canada, is one of the largest owners of oil sands in the world -- as much as 22 billion barrels' worth, or almost 3 billion barrels more than the entire proven oil reserves of the United States.
But because oil in the Canadian sands is among the most difficult and expensive to extract, Suncor's value can seesaw dramatically as the price of oil rises and falls. Back in May 2008, as oil was hitting $120 a barrel, Suncor's stock topped $70 only to tumble below $20 six months later when the price of oil collapsed. The stock has since climbed back to $37.
"Suncor is viewed as among the companies best-levered to oil prices," said Chris Feltin, an analyst at Macquarie Securities Canada. "It provides the highest leverage to increasing or decreasing oil prices."
That leverage has attracted plenty of buyers to Canada's largest energy producer. Suncor was the most popular new purchase in the third quarter among the largest equity hedge funds, according to data compiled by Thomson Reuters.
Along with Soros and Chilton, Diamondback Capital Management LLC and other funds also boosted their Suncor stakes over the quarter, with Diamondback adding 386,000 shares. Representatives of those funds declined comment or could not be reached.
"By its sheer size, it attracts a lot of attention," said William Lacey, an analyst at FirstEnergy Capital. "But it also has its focus and its go-forward growth plan within the oil sands business."
Buying Petro-Canada, a once state-owned oil company whose shares had suffered as it expanded globally and repeatedly failed to meet profit forecasts, brought Suncor two new Canadian refineries, the second-largest chain of retail gas stations and new oil and natural gas production in Canada, the United States, the North Sea and elsewhere.
But the driver behind the deal was the heft the expanded company brought to the oil sands of northern Alberta. After completing planned asset sales of C$2 billion to C$4 billion ($1.9 billion to $3.8 billion), 65 percent of Suncor's production will come from oil sands, up from 50 percent now, Chief Executive Rick George said last month.
Canada's oil sands have the largest oil reserve outside the Middle East but exploiting the resource is expensive and technically challenging.
The multibillion-dollar oil sands projects have been buffeted by severe inflation, with costs rising 50 percent or more from their original budgets, as producers competed for scarce materials and skilled labor.
The rampant inflation and technical challenges make the oil sands one of the most expensive sources of oil. More than C$100 billion worth of projects planned for the region were canceled, delayed or deferred after oil prices plunged last year because of the recession.
But Suncor's new size brings economies of scale. The company estimates that buying Petro-Canada shaved C$400 million in combined operating costs and saved C$1 billion in capital expenditures, along with giving the market power to command lower costs from suppliers.
The company, which expects to produce 300,000 barrels of oil per day from its oil sands operations, said in November it aims to boost production by as much as 12 percent per year through 2020 and make a 15 percent profit from its operations with oil prices at $70 per barrel.
