In his earnings preview titled Don’t be Blue, the Rodeo is just getting started, Desjardins Securities analyst Chris MacCulloch said he’s still “downright bullish” on energy markets at current levels after a “choppy” quarter, citing “a view toward a relatively expedient price recovery, albeit nowhere close to 2022 levels.”
“Oil prices also came under pressure following the emergence of a global banking crisis, which drove considerable volatility in risk assets more broadly,” he said. “However, the Saudis have clearly signalled their willingness to defend oil prices (and a cozy relationship with the Kremlin) in the face of decelerating global economic activity. Meanwhile, we expect Canadian producers to continue posting robust FCF in 1Q23, the lion’s share of which will ultimately be returned to shareholders via capital returns. We’re still in the bullish camp.”
Mr. MacCulloch thinks oil prices are “forward-looking,” expecting a rally “in tandem with market expectations for a potential pivot by the Federal Reserve.”
“Consequently, we are maintaining our 2023–24 WTI price forecast of US$90/bbl and US$100/bbl, respectively, which is materially above current strip prices, reflecting our continued bullishness on market fundamentals,” he added. “We have also tightened our 2023 WTIWCS differential forecast to US$17.50/ bbl (from US$20.00/bbl) given strong downstream demand from increased Gulf Coast refining capacity while retaining our US$15.00/bbl forecast for 2024 with TMX expected to come online early next year.”
The analyst made a series of target price changes. They are:
- ARC Resources Ltd. ( “buy”) to $26 from $25. The average is $21.96.
- Athabasca Oil Corp. (“buy”) to $4.25 from $4. Average: $3.85.
- Crew Energy Inc. ( “buy”) to $7.50 from $8. Average: $7.50.
- Cenovus Energy Inc. (“buy”) to $34 from $35. Average: $31.43.
- Crescent Point Energy Corp. (“buy”) to 16.50 from $16. Average: $14.44.
- Headwater Exploration Inc. (“buy) to $9.50 from $10. Average: $9.33.
- Imperial Oil Ltd. ( “hold”) to $84 from $82. Average: $79.31.
- MEG Energy Corp. (“hold”) to $26.50 from $25. Average: $25.88.
- NuVista Energy Ltd. ( “buy”) to $18 from $17.50. Average: $16.08.
- Peyto Exploration & Development Corp. ( “buy”) to $16.50 from $16. Average: $16.80.
- Vermilion Energy Inc. ( “buy”) to $31 from $30. Average: $28.58.
- Whitecap Resources Inc. ( “buy”) to $15 from $14.50. Average: $14.25.
“We retain our near-term bias for oil-weighted producers, with a view toward rotating into natural gas–weighted names later this year given our more constructive 2024 NYMEX price outlook,” said Mr. MacCulloch. “We also continue to favour small- and mid-cap producers for maximum torque to rising commodity prices. Our preferred names are SU (integrated oil), ARX (large-cap natural gas), ERF (mid-cap oil), AAV (small-cap natural gas), TPZ (royalty) and VET (special situation).”