Suncor (TSX: SU) and Canadian Oil Sands Trust (COS.UN) are two of the biggest oil plays in Canada as well as the top go-to stocks in their sector.  But since they both offer heavy exposure to the oil sands, how do you choose between them?  Which is the better investment, Suncor, or Canadian Oil Sands, going forward?

The answer depends on the type of investor you are and how much of your portfolio you want to allot to this sector – as well as the degree of specification you can afford to support.  The answer might be different if you are a Canadian vs. an American investor as well as whether you have only $1000 to invest or something more like $5-10,000.  I’ll assume you have sorted that out for yourself, however.  Here I’ll just look at some of the basic factors you might want to consider to decide between the two.

Best Canadian Oil Stocks 2009-2010

Suncor (TSX: SU):

.
The oil sands represent just one-third of the source of all crude oil in Canada, but due to the difficulty of extraction, garner the most media attention.  The oil sands also employ about half a million Canadians – so it is not an industry to be ignored.  According to Suncor CEO Rick George, the gasoline that Canadians fill their tanks with increasingly comes from oil sands crude.

Suncor is by far the largest oil sands play, its market cap at $58 billion dwarfing the Canadian Oil Sands at $14 billion, although it not as much of a pure play as the Canadian Oil Sands Trust is.  Suncor is a more diversified play in oil as well as gas, including both upstream and downstream components of the sector.

Just this past November 2009, Suncor completed the acquisition of PetroCanada, one of Canada’s top gasoline companies last year, through which they picked up some of the highest quality gas assets.  Michael Sprung of Sprung & Company Investment Council recently commented on BNN that one might get more “bang for one’s buck” out of a Suncor over the next 3-5 years due to its recent acquisition of assets through PetroCanada.

Suncor also has significant international operations, including projects in Syria and Libya that they picked up from PetroCanada.  They also sell a huge amount of natural gas assets.  Overall, this seems to be a good time to get into Suncor now that they have finished repositioning themselves for continued growth.  The diversification and stability their operations provide is another great factor which could mitigate any political or environmental risks associated with the oil sands in particular.

Peter Schiff’s Top Canadian Oil Stock Pick

World’s Biggest Oil Sands Mining Project

.
For a pure play on the oil sands, COS.UN is your stock.  The Canadian oil sands gives its name to the world’s biggest oil sands mining project, the Canadian Oil Sands Trust (COS.UN).  Canadian Oil Sands owns over a third stake in Syncrude, the mining operation near Fort McMurray in Alberta, Canada (which is run by Imperial Oil (TSX: IMO)).  COS.UN is reported to offer about 100 years of zero-decline asset life and with this comes excellent cashflow.

Canadian Oil Sands produces about 312,000-350,000 barrels/day through its Syncrude stake and has recently raised its quarterly distribution by a dime (40%), up to 35 cents.

Peak Oil and the End of Globalization?

Some criticisms of Canadian Oil Sands are that due to the nature of the extraction and production operations, they are a rather high-cost producer, requiring at least $45/barrel as a break-even point.  But according to Marcel Coutu, Canadian Oil Sands CEO, this is still within the top quartile of industry performance.

Investors should know that Canadian Oil Sands Trust is designed for investors bullish on the price of oil – they are unhedged on oil, so are designed with the expectations of higher oil prices in mind.  They also have very low debt levels – about one-fifteenth of market cap or only one billion dollars.

Because the Canadian oil sands is so specialized, there is more upside potential to the price of oil, whereas this would not be reflected as much in Suncor stock.  The sector risk, however, is higher with COS.UN.  Canadian Oil Sands is still a trust, but pays distributions quarterly and would probably not need to reduce these after 2011.

Canada the #1 Source of Oil for the U.S.

Politics and Problems of the Oil Sands

.
Of course, both stocks will be affected by the political afflictions affecting the oil sands industry – environmental criticisms being chief among these.  While I cannot pronounce on the validity or worth of these criticisms, suffice to say that they are not going to go away and thus remain a source of risk for these stocks.

That said, investors should note that, according to Marcel Coutu, CEO of Canadian Oil Sands Trust, the oil sands industry has decreased its CO2 emissions per barrel by 30% since 1990 and continues to work in that direction.  For more information, investors should check out the site Coutu has developed, which delivers environmental updates on the industry from the oil sands’ perspective: OilSandsNow.ca

More on the plus side, the oil sands are a long-term play and still located in an overall politically stable environment that is very favourable to investment in the energy industry.  For as long as the U.S., in particular, (and increasingly, China) needs oil, the oil sands will continue to be developed as one of the few remaining significant sources of oil, despite the economic hurdles and cost-benefit ratios involved.

No matter which of these two stocks you choose, both are considered extremely high-quality companies and “blue-chip” in the oil sector, for what that’s worth.  All other things being equal, you might also just consider splitting your allocation between the two for the portion of your portfolio devoted to oil and gas.

The OPEC Oil Consumption Cycle and the Dangers of Cheap Energy

If you liked this article, please retweet it on Twitter or consider adding me to your blogroll.  I’d also love it if you subscribe to my RSS feed for free tips and posts like this one delivered right to your reader or by email (posts are not for duplication).

• Bullish on Nat Gas? Check Out These Canadian Natural Gas Stocks and ETFs
• Large-Cap Canadian Energy and Materials Stocks
• Canada Last Bastion of Free-Market Capitalism... Maybe!
• Best Canadian Stocks for Americans To Invest In
• Canadian Stocks Composing the S&P/TSX 60

• Maude Barlow 1st UN Water Adviser
• Should You Invest In Green Energy?
• Bathroom Remodeling Ideas Under $500
• The Costly Compromises of Oil From Sand

Tagged as: Canadian energy stocks, Canadian oil, Canadian oil and gas, Canadian oil sands, Canadian stocks, COS.UN, energy stocks, IMO, Imperial Oil, oil and gas, oil sands, oil sands trusts, stock comparisons, stock picks, SU, Suncor, Syncrude