Last week, we got a look at Warren Buffett’s latest investing moves via Berkshire Hathaway’s 13F filing with the SEC.

Contained within were quite a few surprises, like selling three million shares of Apple and buying 14.45 million shares of JPMorgan Chase.

But the biggest surprise wasn’t the drop in Apple holdings, or the boosted investments in several banking giants … it was the acquisition of 10.8 million shares in Suncor Energy Inc. (NYSE: SU).

Suncor is a vertically integrated Canadian oil and gas company with exploration, refining and production capabilities. That said, Suncor is probably best known for being an oil sands company.

Historically, processing and refining oil sands has been a dirty and costly business. In 2013-2014, the cost of producing a single barrel of oil sands came in north of $37. At the time, $100/bbl oil help sustain oil sands operations across Canada.

When oil prices came crashing down a few years later, companies like Suncor were literally forced to halt oil sands operations.

So, why, then is Warren Buffett so interested in such a risky venture?

Suncor’s Pros

Because Suncor has used the past five years to innovate. According to the company’s most recent investor day presentation, the cost of producing oils sands has plunged to roughly C$25/bbl. What’s more, Suncor has set cost reduction targets to get that cost below C$20/bbl.

As a result, Suncor no longer has to close its doors when oil prices fall. The company can conceivably continue to operate with average WTI oil prices near C$45/bbl, and still maintain enough cash flow to keep its dividend.

But there’s another problem facing Suncor: American shale oil producers. Shale oil, typically derived from fracking, is comparatively cheap versus oil sands and ramps up considerably when oil prices rise.

However, while American shale oil producers have lower costs and times to market, production from individual wells dries up quite quickly. In fact, after only two-years of production, typical shale oil well production drops by about 60 percent or more. And the product left in those wells is harder to extract and process than the initial production runs.

Oil sands don’t have that problem. To meet the same production goals, you simply dig more of the stuff out of the ground and process it. According to Suncor’s 2017 production pace, the company estimates it has about 36 years worth of existing resources to pull from.

Suncor’s Cons

This all paints a pretty picture for Suncor, making the company a positive investment choice. However, there are several cons to this backdrop.

First, Canadian crude trades at a significant discount to WTI crude. This is due to several factors, including currency, limitations and costs for transport to U.S. markets. As a result, even with 36 years worth of reserves, Suncor is considerably vulnerable to low global oil prices due to Canadian compression of prices.

Second, all major global governments and economies (save the U.S.) are moving steadily away from oil as a main source of energy. Germany, France, China, Japan … all have signed accords and pledges to greatly reduce reliance on fossil fuels. Electric and alternative energy vehicles are on the rise, and demand is only limited by cost and convenience right now.

Finally, these two problems will feed off each other going forward. As demand for alternative energy rises, demand for oil will fall, thus lowering global oil prices. This isn’t going to happen overnight, but it is a long-term problem that any oil and gas producer must contend with. And with high-cost oil sands as its main product, Suncor is more vulnerable than most.

The Takeaway

Warren Buffett, Charlie Munger and the people who run Berkshire Hathaway aren’t stupid. They knows the risks involved with Suncor. And yet, they still added 10.8 million shares of the company to the Berkshire portfolio. Over the short- to intermediate-term, this looks like a smart move.

Oil prices have been on the rise recently, as green energy polices will take years to fully implement. What’s more, to meet those goals, oil demand will rise to accommodate the increased production needed to implement the shift … until alternative energy sources become more economically viable to offset this demand.