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A Look into the Cash Flows of US and Canadian Energy Companies

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Cash flow analysis

The ratio of cash generated to cash required for Suncor Energy (SU) was 1.05x in 3Q15. The same ratio for ExxonMobil (XOM), Chevron (CVX), and Imperial Oil (IMO) stood at 1.0x , 0.72x, and 0.76x, respectively.

SU is highly cash capitalized compared to Chevron, XOM, and IMO. IMO’s capital expenditure fell by 15% compared to a 3% rise in SU on a YoY (year-over-year) basis. However, the capital expenditures of Exxon and Chevron fell by 2% and 6%, respectively. E&P (exploration and production) is a capital-intensive industry. Lower cash flows increase a company’s chances of being caught in a vicious cycle of debt-raising and refinancing.

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Cash flow to net income

The cash flow to net income ratio of SU is 3.31x compared to 1.3x, 1.6x, and 1.1x, respectively, for XOM, CVX, and IMO. Relatively high ratios are an added advantage to shareholders. A ratio of more than one indicates depreciation and amortization costs are comparatively higher than net income.

Cash flow is used to serve debt and expand the asset base of a company. SU’s pretax margin is 11% compared to 14%, 16%, and 14.5%, respectively for XOM, CVX, and IMO.

XOM has the highest individual weight in the Energy Select Sector SPDR ETF (XLE). The graph above shows the cash generated to cash required ratios and cash flow to net incomes of these large-cap (large capitalization) integrated companies.

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