In the late 1990s, I started my career as an oil and gas banker. At that time, the best place for an ambitious 20-something to get a lot of high level exposure to big oil and gas transactions was in the wide open frontier markets of the Former Soviet Union. A few years later, in 2002, I was looking at Suncor Energy (SU), a Canadian company that was ramping up production in the oil sands region of Western Canada. What I saw was the potential for extraordinary operating leverage – as long as oil remained above a certain level.

I prepared this financial analysis to confirm my observations about the company’s potential based on my experience financing oil fields just like the ones Suncor was exploiting. It is a journeyman’s point of view of the economics of the company’s resource development potential. Some investors were ignoring that fact that Canadian oil sands had much smaller geology risk than other on-shore oil fields. And certainly a lot less risk than off-shore development. Plus Canada had very low sovereign risk, unlike other huge oil fields scattered around in some of the world’s most unstable political environments.

The Suncor investment taught me to derive confidence based on original, first-principles research. Also, the story told by the numbers and my notes show how important narrative is to completing investment analysis.

The price (adjusted for splits) at the time of this analysis (July 24, 2002) was $7.85.

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