Suncor to sell Petro-Canada lubricants for $1.13B.
• Suncor Energy Inc. is planning to sell all or parts of its Ontario windpower business following the $1.13-billion divestiture of its lubricants business Monday.
Suncor announced it had sold its Petro- Canadabranded lubricants business to Dallas-based HollyFrontier Corp. Monday morning for $1.13 billion and analysts say the company will focus next on selling off parts of its renewable energy portfolio.
Suncor confirmed it planned to sell all or parts of its wind- power assets in Ontario, but planned to hold on to its wind- generating capacity in Alberta and Saskatchewan.
“You will notice in our financial disclosures that we’ve now listed further assets with net book value of approximately $ 275 million as held for sale. This relates to the likely sale of some of our non- core wind assets within the next 12 months,” Suncor executive vice-president and chief financial officer Alister Cowan said on an earnings call last week.
Suncor had previously said it planned to sell between $ 1.1 billion and $ 1.5 billion in assets.
Citi Research analyst Fernando Valle said the company has already exceeded that target given the sale of its lubricants business and the recent sale of interests in its oil storage facilities near Fort McMurray.
Valle said the company is not under any pressure to sell off the wind- power assets or to launch a sales process for other assets. He said the company has enough cash and earnings to increase its dividend.
“The No. 1 goal right now is to increase shareholder distributions,” Valle said of Suncor. The company indicated last week that it was considering an increase to its dividend or using its available cash to buy back its own shares.
Raymond James analyst Chris Cox said in a research note that the lubricants business generated US$ 150 million in earnings before taxes for Suncor and, based on those numbers, Suncor got fair value for the sale.
Cox noted the main asset in Suncor’s lubricants business was a large manufacturing facility in Mississauga, Ont. The entire lubricants business employed 7 00 people, and Suncor spokesperson Sneh Seetal said those employees will join HollyFrontier.
Valle said the Mississauga plant was not integrated into Suncor’s downstream business or strategy, which explains why the company decided to sell it. Some other oilsands companies, such as Imperial Oil Ltd., have closer ties between their refineries and their chemicals or lubricants plants.
For Suncor, Valle said, the lubricants business was acquired in the Petro- Canada merger and is based in southern Ontario, while the company’s nearest refinery is farther east, in Montreal.
He also said the administrative costs of running the 700- person lubricants business were high relative to of the earnings it generated.
CIBC World Markets analyst Arthur Grayfer said in a research note Monday that Suncor’s wind farms are likely worth $290 million and also listed its ethanol plant in St. Clair, Ont., among other non-core assets the company could eventually sell.
“It was Suncor’s aim to st r engthen t he balance sheet,” Grayfer said, adding that Suncor had $ 14.5 billion of net debt in the second quarter of this year. With the sale of the lubricants business, he said, “We believe the company has achieved this.”
Suncor shares fell 2.5 per cent to close at $40.25 in Toronto on Monday. The drop was roughly in line with the wider decline in S& P/ TSX Capped Energy Index, which was down 1.5 per cent, thanks to a drop in oil prices.
The West Texas Intermediate benchmark oil price fell to US$ 46.94 per barrel Monday — a 3.6 per cent drop.