CIBC NotesWe highlight CNQ, IMO and SU as three companies where we expect free cash flow generation to disproportionately accrue to shareholders given their relative leverage. Despite the relatively attractive free cash flow valuation for CVE, we expect a balanced approach of
capital allocation towards lowering leverage and returning cash to shareholders. We expect the company is on the cusp of accelerating free cash flow allocation towards shareholders as the company reaches its debt target in 2022 (oil price dependent). For MEG, we highlight a large focus on paying down debt, but if the oil price follows the forward curve, the company could begin discussing plans to return capital to shareholders in late-2022.
Our analysis suggests that the entire sector is showing an attractive valuation, but we view there to be a larger disconnection between the Canadian oil sands companies and the movement in the underlying commodity. Despite having relatively lower sustaining capital
requirements compared to more conventional plays, we believe investors have more than priced in concerns around energy transition and terminal value risk for the Canadian oil sands.
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