Seeing improving fundamentals, RBC Dominion Securities analyst Greg Pardy thinks investors should not expect any surprises from the first-quarter financial results for integrated oil and senior exploration and production companies.
“First-quarter results in energy land follow the recent release of year-end performance which wrapped up in March and should contain little in the way of drama from where we sit,” he said. “That’s a good thing in our minds. Indeed, on balance, first-quarter conference calls should be happy experiences for investors in Canada energy given a favorable oil landscape punctuated by progress towards net debt targets for many producers, rising shareholder returns and the approaching debut of the 590,000 bbl/d Trans Mountain Pipeline Expansion.
“We estimate that Canada’s oil sands weighted majors—Canadian Natural Resources, Suncor Energy, Cenovus Energy and Imperial Oil — generated free cash flow (before dividends and working capital movements) of $5.6 billion in the first-quarter, reduced net debt by $1.8 billion, repurchased $1.1 billion of their common shares and paid/accrued cash taxes (to all jurisdictions) of about $1.8 billion. On average, the share prices of our oil sands weighted majors rose about 21 per cent in the first-quarter, and possess further upside in our books.”
In a research report released Tuesday, Mr. Pardy upgraded his projections to reflect first-quarter actual commodity prices, disclosed share buybacks and “other various fine-tuning adjustments, in part due to weather impacts.”
“Our favorite senior producer remains Canadian Natural Resources (Global Top 30 and Global Energy Best Ideas lists), with Suncor Energy (Global Energy Best Ideas list) remaining our favorite integrated,” he said. “MEG Energy (Global Energy Best Ideas list) is our favorite intermediate producer. Cenovus Energy also sits on our Outperform roster.”
With those changes, he boosted his one-year target prices across the board “reflective of target multiple expansion driven by improving fundamentals.” His changes are:
* Cenovus Energy Inc. ( “outperform”) to $32 from $28. Average: $30.57.