Desjardins Upgrade Desjardins Securities’ energy research team, led by analysts Justin Bouchard and Chris MacCulloch, thinks Canadian energy sector has quickly transitioned from “rags to riches,” admitting the rising in oil prices has exceeded their expectations and also see the set-up for natural gas as “extremely promising.”
“Tightness in global oil markets, coupled with the Russian Federation’s invasion of Ukraine, has pushed benchmark prices to levels not seen since 2014,” they said. “Meanwhile, North American natural gas prices have exploded in recent weeks in response to the expanding U.S. storage deficit.
“Given the supportive price backdrop, producers are poised to report massive FCF prints with1Q22 financial results. We expect accelerated return of capital to remain in the spotlight for the sector as more companies accelerate (or introduce) dividends and share buyback programs.”
In a research report released early Tuesday, the analysts raised their WTI price assumptions to US$100 per barrel for both 2022 and 2023 and their 2022 NYMEX estimate to US$7 per million British thermal units.
“If you roll back the clock two years, nearly every company in the energy sector was under serious pressure: production was being curtailed, capital programs were slashed and any semblance of shareholder returns was shelved,” they said. “Fast-forward to today and the environment has completely changed; nearly every producer under coverage is now projected to achieve its respective debt target by year-end 2022. Capital returns are obviously top of mind—the only question is, what is the best way to put dollars into shareholder pockets? The bottom line is that Canadian energy producers have been handed a once-ina-lifetime opportunity to reinvent themselves as lean, mean, cash-flow-returning machines.”
With that view, the analysts raised their target prices for stocks in their coverage universe.
For large-cap companies, their changes were:
* ARC Resources Ltd. ( “buy”) to $27 from $25. The average is $21.89.
* Tourmaline Oil Corp. ( “buy”) to $75 from $71. Average: $74.27.