We are looking for Canadian dividend paying intermediate oil and gas companies producing between 10,000 boed and 100,000 boed. Canada produces more than 3 million barrels of oil per day of which the majority is exported to the US. Thanks to the Western Canadian Sedimentary Basin’s favourable geological characteristics, Canada is uniquely positioned to provide our world energy responsibly and reliably since oil and gas will continue to play an important role in the global energy supply mix.
The Canadian oil and gas sector is well positioned to return substantial profits to investors as oil and gas production grows year over year. Given the low interest rate environment we are currently in, the high yield sector will continue to attract investor interest through 2013.
3 reasons why dividend paying stocks in the intermediate sector constitute an excellent way of playing Canada:
- Greater relative exposure to emerging plays (versus major E&Ps)
- Superior access to capital (versus junior E&Ps).
- Dividends will help you cover the rise of inflation through a growing dividend stream and weather any short-term weakness in the stock market.
This list by CanadianOilStocks will provide the starting point to your due diligence if you’re looking to add exposure to the Canadian oil and gas sector.
|
Company |
Ticker & Price |
2013 Yield Estimate |
|
ARC Resources |
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5.02% |
|
Baytex Energy |
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6.23% |
|
Bonavista Energy |
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9.77% |
|
Bonterra Energy |
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7.46% |
| Enerplus Corporation | Error opening: http://finance.yahoo.com/d/quotes.csv?s=erf.to&f=sl1c1j1yn | 1.84% |
|
Pacific Rubiales |
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8.66% |
|
Pengrowth Energy |
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10.11% |
| PetroBakken Energy | Error opening: http://finance.yahoo.com/d/quotes.csv?s=pbn.to&f=sl1c1j1yn | 9.27% |
|
Petrominerales |
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6.08% |
|
Peyto Exploration |
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3.22% |
|
Trilogy Energy |
Error opening: http://finance.yahoo.com/d/quotes.csv?s=tet.to&f=sl1c1j1yn | 1.45% |
|
Twin Butte Energy |
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7.65% |
|
Vermilion Energy |
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4.44% |
|
Whitecap Resources |
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7.03% |
A number of intermediates reduced their dividend payments as they converted from trusts to corporations in 2010. Further dividend cuts followed in 2012 as natural gas prices collapsed and oil price discounts widened for Canadian producers. However, contrary to peers, Bonterra Energy increased its dividend by 8% for 2013 following its last increase of 9% (in January 2011).
Do not let high yield be the deciding factor in choosing a stock. Make sure the company is able to fund its dividend from its cash flow as payout ratios are getting impacted by low natural gas prices and volatile oil differentials. A rising payout ratio will result in a dividend cut because the company is no longer able to fund capital spending and a dividend. This will be particularly true for companies with little hedges and a high level of debt.
Both Pacific Rubiales and Petrominerales are South American based which captures the full price of Brent oil. The same applies for Vermilion Energy which is a geographically diversified international producer . Picking the right stock(s) for your portfolio involves taking the time to study each company by looking at the sustainability payout ratio, the debt level, production weighting (oil/gas) and leverage to Canadian oil and gas plays. The oily names are obviously preferred given the the current strength in the price of oil however the outlook for natural gas prices in 2013 is improving. The key is to identify the companies that are capable of organic growth through developing their land base and paying a dividend out of internally generated funds.
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.