Canadian energy update

Pipeline delays, depressed oil pricing and expensive upgrades may be cause for concern, but we’re still optimistic

Andrew Willis 7 February, 2020 | 1:16AM
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Andrew Willis: The last few years have been a bit of a drag for Canadian energy investors. Minimal gains and frequent losses have given some investors a negative outlook, but we believe times are a changin’.

Sector analyst Joe Gemino says that while downside drivers for oil such as pipeline delays and discounted crude prices may seem to have become the norm, 2020 could be a transitional year.

Canada’s oil sands have been characterized by high capital requirements and production costs, but Gemino’s still confident in the completion of Canada’s major pipeline projects, and while that may yet be a few years away, he reminds investors that there’s another development in the industry occurring at the same time – and this one would be a potential game-changer when it comes to profitability.

Known as a “solvent-aided process”, a new method of oil sands extraction using a small amount of complementary chemicals will significantly reduce costs, making Canada’s oil sands the most efficient in the industry at break-even prices of only 45 U.S. dollars a barrel.

Also, it’s worth reminding energy investors that it’s not all about oil. Canada is still the fifth-largest producer of natural gas and the Canadian government says we’ve kept levels of marketable production levels fairly steady for the past two years.

The market has been too narrowly focused on targeted balance sheet performance, vastly underestimating the potential on the horizon and undervaluing stocks like Cenovus (CVE), says Gemino, which he still calls Canada’s King in the North.

For Morningstar, I’m Andrew Willis.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Cenovus Energy Inc28.85 CAD-0.07

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar Canada. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

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