Light at the end of the tunnel?
Energy companies all around the world have suffered recently as Brent crude oil prices dipped below the $50 mark. And the Canadian energy sector is no exemption. US rising inventory levels created a supply overload and at the same time Canada’s shift towards renewable energy (favored by Prime Minister Justin Trudeau) has resulted in an uncertain environment for traditional oil and gas companies. Headlines of Shell’s $7.25 billion asset sale to Canadian Natural and billion-dollar write downs of Canadian assets by Exxon and Conocophillips have done nothing to improve fragile market sentiment.
However, 2017 could still turn out to be a better year for the Canadian energy sector than 2016. OPEC could vote to extend production cuts into the second half of the year which could offset rising US inventories. Secondly there is hope that oil prices will ultimately recover on consumption growth (OPEC expects demand to grow at 1.2 million barrels per day in 2017) and- even if not- cost-cutting and innovation could result in viable projects even at oil prices of $US 40/B.
Indeed, Canada’s largest energy-focused private equity firm, ARC Financial, forecasts total revenue for 2017 to be C$32 billion higher than 2016. After tax, cash flow is expected to rise from only C$20.4 billion in 2016 to over C$45 billion in 2017, according to the firm’s December 20 report.
10 Energy Stocks To Track
So which top US and Canadian energy stocks should investors be keeping an eye on? Take a look at these two graphs to see the upside potential for these 10 energy stocks:
1 Enbridge (ENB)– with a 20% upside potential, the market is very bullish on Enbridge (it has a strong buy analyst consensus rating) which recently merged with Spectra Energy to create one of the world’s largest energy infrastructure businesses.
2 Suncor Engergy (SU)– also with a 20% upside potential, Suncor Energy’s diversified revenue stream (including 4 large refineries and a retail business) has enabled the stock to withstand the impact of low oil prices.
3 Canadian Natural Resources (CNQ)– four-star Canaccord Genuity analyst David Fong recently published a buy rating on CNQ, which has a 22% upside, saying: “CNQ stands out as having a similar FCF generation (10% FCF yield in 2017E-2021E) and above-average five-year production CAGR.”
4 Imperial Oil (IMO)– despite a 17% upside potential, the market is cautious on IMO which has a hold analyst consensus rating. Low share prices fell further following a hydrocarbon leak at its Sarnia site in February.
5 Cenovus Energy (CVE)– falling share prices mean that CVE’s price target now represents a 38% leap from current levels. TD Securities upgraded CVE to buy on March 24, calling the stock a “chronic underperformer” and seeing an attractive entry point with shares -17% YTD.
1 Exxon Mobil (XOM)– the average analyst price target of $86.45 gives the world’s largest oil and gas company only a 6% upside potential. Much to the delight of President Trump, Exxon recently announced plans to invest $20 billion through 2022 in its US chemical and oil refining plants.
2 Chevron Corp (CVX)– with a 20% upside potential, Chevron announced on March 24 that it is selling its South African assets to Sinopec in a $900 million deal as part of its three-year divestment plan.
3 EOG Resources (EOG)– Texas-based EOG also has a slightly lower 15% upside potential. EOG could be protected from low oil prices due to its focus on premium well sites that have higher productivity and lower costs.
4 Conocophillips (COP)-this stock has a high upside potential of 34%. COP share prices were particularly hurt by falling crude oil prices with US oil inventories up to 533 million barrels.
5 Occidental Petroleum (OXY)– although OXY only has a 15% upside potential, top Credit Suisse analyst Edward Westlake recently upgraded the stock to buy with a $79 price target (26% upside) saying the company’s inventory of low cost Permian reserves is not reflected in its valuation.