New Coverage The current energy “crisis” renews a “pathway to opportunity” for investors, reinforcing the transition to renewable sources will be “long and challenging,” according to ATB Capital Markets analyst Patrick O’Rourke.
“In our view, this has presented an opportunity for Canada’s very low geological risk and low decline oil sands assets to once again shine in a global context, as a highly reliable source of energy,” the analyst said. “Canada is well noted for its strong human rights, governance and environmental practices relative to other globally significant producers of oil. However, a credible and tangible reduction in emissions is clearly required for the social license to continue to meet the world’s energy needs. The recently announced, industry collaborative, Oil Sands Pathway (a partnership of the five companies discussed in this report) to net zero provides a clear, three-phase path to net zero scope one emissions by 2050.”
Mr. O’Rourke initiated coverage of these companies:
Cenovus Energy Inc. with an “outperform” rating and $19.50 target. Average: $17.74.
Analyst: “CVE currently offers the highest upside to our NAV, at 32.6 per cent, while we see an average upside of 16.3 per cent for the group ... a key driver of our outperform rating. The focus on Cenovus’ merger with Husky was on improving market access and integrating its operations from the wellhead to the refinery. Cenovus is now focused on the $1.2-billion in identified cost structure savings and the project high gradings that were laid out in the merger announcement, and given the confidence and execution that CVE has been conveying, we believe there is further potential upside, though broader economic inflationary pressures may limit that. In addition, we continue to believe there is plenty of opportunity to improve upon the prior existing and Husky acquired assets (most visibly through the margin enhancing integration of Foster Creek/Christina with Husky’s Lloydminster upgrader). Finally, we believe that CVE is also best positioned for asset rationalization that accelerates debt repayment and the path to shareholder returns relative to peers, with the obvious focus being the Deep Basin and retail assets (while the Company clearly alluded to the potential for other asset sales on recent investor calls).”