We are looking for senior Canadian dividend paying oil and gas companies with production in excess of 100,000 boed. Bigger is not always better because it implies low or no growth in production. However, the senior group has a few advantages compared to intermediate energy companies:
Oil Sands Exposure
The list below includes several stocks which offer a meaningful exposure to Canada’s oil sands. If you’re looking for oil sands companies to invest in, be sure to investigate Suncor Energy, Cenovus, Canadian Natural and Canadian Oil Sands. Suncor for example has more than 25 billion barrels of oil sands reserves to develop for years to come.
Integrated Downstream Operations
Stocks with downstream operations own or operate several company refineries and distribution networks (retail & wholesale). These strategic assets allow them to capture the entire value chain of oil development and mitigate the risk of widening differentials eliminating partially or totally the discount volatility of Canadian oil prices to Edmonton Par and WTI.
Integrated Midstream Operations
Some producers own oil and gas pipeline systems allowing them to move their own production at a low cost basis. Furthermore, a few senior own and operate power generation plants like Canadian Natural Resources and Suncor Energy.
Greater Leverage to Oil
Senior operators provide a greater leverage to oil and are typically more diversified than intermediate and junior producers. Those with international upstream assets provide exposure to Brent pricing which helps mitigate the impact of volatile differentials in Canada.
While you get a more diversified asset base with senior producers, they typically offer a lower yield compared to intermediates and juniors. That’s a reflection of lower risk since a diversified asset base provides a safer way of investing in the oil & gas sector.
Senior companies from the list that are missing the key strategic advantages mentioned above are the ones sporting the higher yield. Penn West Petroleum, Canadian Oil Sands and Crescent Point have little or no diversification in their asset base which leaves them at the mercy of Canadian oil price volatility. A risk that can only be mitigated by building attractive hedge books when prices are high. This is obviously a key point you need to investigate should you make a pick based on high yield.
EcoPetrol is the other high yield stock in the list. The company operates mainly in Colombia but it also has exploration assets in the US (Gulf of Mexico), Peru and Brazil. EcoPetrol also owns strategic downstream (refineries) and transportation assets (oil pipelines.)
|
Company |
Ticker & Price |
2015 Yield Estimate |
|
CANADIAN OIL SANDS |
cos.to $N/A [+0.00] |
1.6% |
|
CDN NATURAL RES |
cnq.to $39.03 [-0.97] |
2.4% |
|
CENOVUS ENERGY |
cve.to $17.82 [-0.30] |
4.6% |
|
CRESCENT POINT ENERGY |
cpg.to $16.81 [-0.37] |
9.2% |
|
ECOPETROL S.A. |
ecp.to $N/A [+0.00] |
6.2% |
|
ENCANA CORP. |
eca.to $11.99 [-0.46] |
2.0% |
|
HUSKY ENERGY INC. |
hse.to $15.53 [-0.30] |
4.8% |
|
IMPERIAL OIL |
imo.to $39.60 [-0.53] |
1.1% |
|
PENN WEST PETROLEUM |
pwt.to $2.33 [-0.09] |
1.4% |
|
SUNCOR ENERGY INC |
su.to $34.85 [-0.09] |
3.1% |
For conservative investors, large cap companies provide the option to add energy exposure in a defensive stock. Do not pick your stock based on yield, make sure you investigate the asset base of each stock before taking an investment decision. Make sure the distribution is sustainable by looking at the payout ratio. Identify the long term growth prospects you are comfortable with in light of balance sheet health.
Oil & natural gas will be a part of our energy landscape for years to come. All forecasts call for a dramatic increase in oil production in the coming decade particularly in the oil sands. Having said that, if you are not bullish on oil or natural gas, there is no point in owning any of the above. A different way to gain exposure to the sector would be through dividend paying oilfield services companies.
Disclaimer: the information presented above is only for informative purposes; it’s meant to serve as a starting point to carry your own due diligence. It is in no way an encouragement to buy or sell the aforementioned securities. If you find any errors in the data please do not hesitate to contact us.