Chesapeake Energy Corporation (CHK), Chevron Corporation (CVX), Suncor Energy Inc. (USA) (SU): The Next Big Energy Short Is Coming

A long candidate

Suncor Energy Inc. (USA) (NYSE:SU) makes money in the Canadian oil sands. Canada’s energy producers have been heavily affected by the boom in U.S. energy production. U.S. producers have an advantage as they are closer to refineries in the Gulf Coast and Midwest. The above chart shows how North Dakota’s oil production has increased almost 400% in the past five years, but in the past year it has increased 21.71% and in the last six months it has increased just 1.65%.

As the fracking boom cools down Canadian oil producers will have an easier time buying pipeline space. More pipeline space will help margins by decreasing transportation costs. Right now, refinery restarts are helping Canada’s oil sand producers get better prices for their heavy oil. With a total debt to equity ratio of 0.28 and a market cap around $45 billion, Suncor Energy Inc. (USA) (NYSE:SU) is a stable oil sands player. Its EBIT margin of 13.2% and profit margin of 6.2% are not amazing, but these numbers will improve as U.S. fracking boom calms down.

Conclusion

Production from fracking is starting to taper off. Highly indebted companies like Chesapeake Energy Corporation (NYSE:CHK) are in a dangerous situation. Larger competitors like Chevron Corporation (NYSE:CVX) are more diversified and better suited to deal with the coming challenges. Suncor Energy Inc. (USA) (NYSE:SU) has seen a number of challenges over the past couple years, but its healthy oil sands production will differentiate it from U.S. tight oil producers.

The article The Next Big Energy Short Is Coming originally appeared on Fool.com and is written by Joshua Bondy.

Joshua Bondy has no position in any stocks mentioned. The Motley Fool recommends Chevron. The Motley Fool has the following options: Long Jan 2014 $20 Calls on Chesapeake Energy, Long Jan 2014 $30 Calls on Chesapeake Energy, and Short Jan 2014 $15 Puts on Chesapeake Energy. Joshua is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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