Suncor Energy Inc expected to shed assets

Higher debt stemming in the purchase of Canadian Oil Sands Ltd. will likely lead Suncor Energy Inc. to divest some non-core assets, but if oil prices remain depressed, its retail gasoline business may also be put up for sale.

The $6.67-billion takeover includes $2.4 billion of debt, while at the same time giving Suncor a long-life, low-decline asset during a commodity cycle trough.

As Arthur Grayfer at CIBC World Markets points out, the Canadian energy giant’s strong track record offers the possibility of improved profitability in the Syncrude oil sands joint venture.

The analyst likes the acquisition despite noting that “Suncor essentially acquired debt and little free income.”

He doesn’t anticipate that Suncor will cut its dividend, suggesting that it’ll instead decide to sell non-core assets whose values are less impacted by current oil prices. Some possible candidates are its renewables business (six wind farms), pipeline assets and 13 major refined product terminals.

If oil prices remain lower for extended, Grayfer thinks Suncor may divest its retail business, including approximately 1,500 Petro-Canada gas stations.

The analyst estimates the organization will target approximately roughly $1 billion and $2 billion in asset sales in 2016. He believes the retail clients are worth near to $3 billion.