SU: Suncor Energy, Inc. Message Board

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Gold/Mining/Energy : SU: Suncor Energy, Inc.

SU 39.63

-0.5%

9:30 AM EST

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From: Dennis Roth	9/20/2007 8:04:17 AM
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Proposed royalty regime impact $10/shr; $6 likely already in stock - Goldman Sachs - September 20, 2007 News Suncor shares fell US$4.26 on September 19 after the Alberta Royalty Review panel announced harsher than expected recommendations to the royalty regime. The panel recommended an increase to the after-payout royalty rate on oil sands revenues-less-costs to 33% from 25%. Additionally, the panel recommended a new sliding scale severance tax beginning with 1% of bitumen prices when WTI oil is at $40/barrel rising to 9% of bitumen prices when WTI oil is at or greater than $120/barrel. Analysis It remains to be seen whether the Alberta provincial government will adopt all versus some of the recommendations from the panel, and we expect comment in three weeks. We see a US$10 per share impact to our $136 per share 12-month discounted cash flow based target price on Suncor shares from the royalty changes if adopted in full. Oil sands stocks were weak earlier in the year when the Alberta government announced the formation of the review committee, and we believe this sentiment negatively impacted Suncor shares by about $2. When considering the September 19 reaction we believe $6 of the $10 per share has already been factored in. Implications Since we do not have conviction on the actions the provincial government will take, we do not necessarily believe Suncor shares are at bottom regarding this issue and believe we may see volatility over the next few weeks. However, a further decline would represent an opportunity, and risk/reward remains positive. We continue to rate Suncor Buy. Even with the added regulations Suncor should remain the leader versus oil sands peers due to its lower cost of expansion. Suncor also should benefit from our bullish view on crude prices (which on the margin would be more bullish if the royalty recommendations are adopted). Key risks include commodity price volatility, drilling results, cost pressures and government pronouncements.

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