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Company Research
The narrowing of the WTI-WCS differential
Dan Fong highlights a recent and rapid narrowing of the WTI-WCS differential, which has generally positive implications for Canadian oil sands producers. Since bottoming out at ~USD$33/bbl last October, heavy differentials have narrowed to ~USD$18/bbl. This coincides with a pause in US Strategic Petroleum Reserve releases and the prospect of replenishment. In addition, with support from L3R and TMX, Canadian heavy has a line of sight into additional takeaway capacity and new markets. Price and spread volatility notwithstanding, these factors should be a net positive for WCS. Canadian Natural Resources and Imperial Oil have some of the highest cash flow sensitivity to differential changes.
Edition: 155
- 03 March, 2023
4Q22 Earnings: A quantitative and predictive outlook
Energy
Cmind is rolling out 4Q22 earnings beats / misses predictions at both the sector level and company level. In the Energy sector, they have made predictions for 182 US public companies. Breaking down to cap level, there are 34 large-cap (28 predicted to beat vs. 6 predicted to miss), 37 mid-cap (20 beats vs. 17 misses) and 111 small-cap ( 52 beats vs. 59 misses) companies. Overall, the energy sector is predicted to outperform most other sectors. Stocks expected to beat: Schlumberger, Diamondback Energy, Halliburton and Plains All American Pipeline. Stocks likely to miss: Cheniere Energy, Williams Companies, Enbridge and Imperial Oil.
Edition: 152
- 20 January, 2023
Canadian Oil Sands: Crack spread comedown
Energy
North American refiners had a banner year as demand for refined petroleum products surged and crack spreads hovered at record highs for most of 2022. However, we are starting to see signs of weakening demand and US crack spreads are already coming off their highs. In light of recent macro data points, Dan Fong lowers his crack spread assumption (to US$20/bbl from US$29/bbl) and updates his recommendations and valuations for Canadian Natural Resources (rated Buy), Suncor (Buy), Cenovus (Sell) and Imperial Oil (Reduce).
Edition: 152
- 20 January, 2023
Canadian Energy Stocks: Gushing Cash Flows
Energy
Canada's 'Final Four' large-cap integrated oil sands producers are set to generate significant cash flow - Canadian Natural Resources (Veritas' top pick), Suncor, Cenovus and Imperial Oil trade at a 20% 2022 FCF yield (assuming US$65 WTI). Even if management teams spend half of free cash on debt reduction, it will still leave plenty of room for some eye-popping shareholder yields (dividends + buybacks) ranging from 8.7% to 13.5%. Veritas’ report also outlines potential M&A that could result from recent climate policy initiatives.
Edition: 119
- 17 September, 2021