Tory exit bodes ill for oil stocks
Like much of the country, energy stocks could turn red if the Liberals win next week’s federal elections.
“A non-Conservative government would likely be negative for energy equities,” Toronto-based investment bank Canaccord Genuity said in a new report.
“We believe a non-Conservative federal government would likely be viewed in a negative light given the NDP and Liberal parties’ policies on environmental legislation, regulatory oversight and export pipelines,” analyst Anthony Petrucci said in the report.
The three main federal parties have offered starkly different views of the oil and gas industry to voters. The Conservative government supports all the major pipeline proposals and has resisted introducing carbon levies at a federal levels. The Liberal party, which is leading in the polls, has stated it would launch an immediate review of the country’s energy regulations if it comes into power, while the NDP is proposing a cap-and-trade system to curb carbon emissions and has pledged to impose higher corporate taxes.
The NDP, which is trailing its key rivals in the polls, is widely seen as least friendly toward the oil and gas sector.
“Owing largely to its plan to raise federal corporate taxes, we believe an NDP majority government would be the most concerning scenario for energy stocks with the most affected being the senior and integrated E&Ps and oilsands sectors,” Petrucci stated.
The S&P Capped Energy Index has fallen nearly 15 per cent since Alberta’s provincial NDP party took over the reins in May, data shows. While declining oil prices have contributed to the rout, investors have also feared the provincial NDP’s royalty regime and climate change policy review would lead to higher business costs.
Barclays Capital notes that both the Liberals and NDP aim to increase investment in clean and renewable energy.
“Overall, under either the Liber- als or the NDP, we expect a greater degree of scrutiny and regulatory oversight for the energy sector,” Barclays analyst Grant Hofer said in a note. “The industry may not be able to bear a higher cost structure.”
Canada is already seen as a highcost jurisdiction and regulatory changes could reverberate across an industry that represents 19 per cent of the Toronto Stock Exchange index, Hofer said.
“Further, the impact to the energy sector could be meaningful due to potential new legislation, with the greatest influence likely to the oilsands producers, where emissions concerns are most significant and a lack of pipeline capacity could have the greatest impact on realized pricing.”
Companies such as Suncor Energy Inc., Imperial Oil Ltd., Canadian Natural Resources Ltd., Shell Canada and Canadian Oil Sands Ltd., which emit some of the highest greenhouse gas emissions in the country, would likely to be most negatively affected if Liberals or the NDP follow through on their plans to impose stricter carbon levies.