Low prices not holding back Canadian oilpatch
Companies performing well in 2nd quarter
Oil prices may be stuck in the mud, but Canada’s largest energy companies are showing that they’re adjusting to the new reality, and can still produce healthy earnings.
Despite crude’s inability to sustainably break through the US$ 50 per barrel mark since prices for the commodity fell off a cliff roughly three years ago, portfolio
staples like Suncor Energy Inc., Canadian Natural Resources Ltd. and Cenovus Energy Inc. generated relatively impressive secondquarter results.
Canadian Natural beat analysts’ expectations on Thursday, exceeding forecasts on earnings, cash flow and production. The company also issued promising guidance, indicating that it will add 3,000 barrels of oil equivalent (boe) production, along with an $ 180 million capital spending cut.
Cenovus also had a strong quarter, as both production and cash flow surprised to the upside. Some of this was the result of tax benefits and favourably currency markets, but the better- than- expected production stemmed from positive results from each of the company’s assets. That also helped Cenovus trim its net debt to approximately $400 million as of the end of June.
“These results were positive overall given that all the numbers were in the right direction and as the company was able to reduce full-year spending guidance,” said Tyler Reardon, an analyst at Peters & Co.
Questions remain as Cenovus continues to seek buy- ers for its conventional oil assets, but at US$50 per barrel oil. The company didn’t provide the market with anything definitive on this front, but management continues to express its confidence that it can raise as much as $5 billion in proceeds.
Suncor’s Q2 results were mixed, but its growth plans for the Fort Hills and Hebron projects remain on track, and that should lead to higher free cash flow. RBC Capital Markets analyst Greg Pardy pegs that at $ 3.1 billion ( before dividends) in 2018, based on US$ 50 WTI oil prices.
He reminded investors that Suncor hiked its dividend by 10 per cent when it reported year-end results for 2016, and thinks the company is in a good position to do so again.
Suncor reaffirmed its 2017 production guidance of 680,000 to 720,000 boe per day, but Pardy cautioned that it may end up near the lower end of that range.
A fire at Sync rude in March, coupled with other issues, have curbed production for the past five months. However, Syncrude is now supporting gross synthetic crude oil production rates of approximately 70 to 80 per cent of design capacity.
“Growth is coming,” Pardy added, noting that Fort Hills is on track for start- up later in 2017.
All three stocks have moved up sharply in the past months, with Suncor leading the way with a nine per cent gain. However, they are still in the red on the year, and Cenovus has suffered an outsized decline of roughly 50 per cent.
Clearly, investors want to see a lot more in terms of execution before they jump back into the Canadian oil patch with both feet. Nonetheless, now appears to be a good time to start picking away at these names.