National Bank National Bank Financial analysts Travis Wood and Dan Payne think Canadian energy companies are poised to benefit from future strength in Western Canadian Select oil, predicting it could become “a dominant global heavy benchmark.”
“We no longer see WCS as the marginal global heavy barrel,” they said. “Although the U.S. refining complex will remain the primary consumer of Canadian oil, we think an operational TMX pipeline positions WCS as a global benchmark. This is likely to create short-term price swings across the heavy oil market as refineries digest the impact of a changing supply dynamic. In our view, this will have a more nuanced effect on oil pricing than is currently appreciated as we consider potential changes to the North American oil transmission and import dynamic across the PADDs.
“The majority of Canada’s 170 billion barrels of proven oil reserves are to be sourced from the oil sands and stands to help supply the global industrial and infrastructure expansions for as long as demand persists (reserve life implied 100 years). As refineries tackle contaminated or inconsistent supply sources during demand growth, we rank Canada as the best positioned global heavy oil supply source given a variety of factors, but notably from a: quality of supply, environmental, social, governance, geographic, safety and economic perspective ... checks all boxes.”
In a research report released Thursday, the analysts upgraded their commodity price assumptions for both 2023 as well as the long term. Their WTI estimate for 2023 rose by 3 per cent to US$80 per barrel (from US$77.50 previously) with their 2024 projection jumping 8 per cent to US$81 (from US$75). The firm’s long-term expectation rose to US$75 (from US$70).
“Since we last revised our commodity price assumptions back, crude prices have moved materially higher on the back of material OPEC+ production cuts extended through year-end as well as bullish inventory data finally calling attention to the true tightness present in global markets,” they said. “While there has been short-term volatility this past week related to signs of bearish gasoline demand amid a heavier refinery turnaround season in the U.S., the recent eruption of conflict in the Middle East, and its’ potential repercussions on global energy security have helped buoy prices along the forward curve. This upward movement in price over the past quarter necessitates us to update our price forecast to better align with strip.”
They added: “We remain constructive on both crude oil and natural gas supply/demand fundamentals over the short to medium term, while acknowledging the continued concerns surrounding a potential global recession, prolonged periods of inflation hampering demand and the potential for macro contagion.”
With their commodity price forecast adjustments, the analysts raised their total cash flow estimates for companies in their coverage universe by 4 per cent in 2023 and 14 per cent in 2024. That led them to increase their target price for shares by an average of 45 per cent.
They raised their targets for these stocks:
- Arc Resources Ltd. ( “outperform”) to $25 from $23. The average on the Street is $24.03.
- Birchcliff Energy Ltd. (“outperform”) to $9.75 from $9.25. Average: $9.91.
- Canadian Natural Resources Ltd. ( “sector perform”) to $100 from $90. Average: $95.62.
- Crescent Point Energy Corp. (“outperform”) to $19 from $16. Average: $14.02.
- Crew Energy Inc. ( “sector perform”) to $7 from $6.50. Average: $7.92.
- Cenovus Energy Inc. ( “outperform”) to $37 from $31. Average: $31.79.
- Enerplus Corp. (“outperform”) to US$25 from US$23. Average: US$25.64.
- Freehold Royalties Ltd. ( “outperform”) to $20 from $19. Average: $19.08.
- Imperial Oil Ltd. ( “sector perform”) to $110 from $82. Average: $83.50.
- Kelt Exploration Ltd. ( “outperform”) to $9.25 from $8.50. Average: $8.79.
- Lucero Energy Corp. (LOU-X, “sector perform”) to $1 from 90 cents. Average: 90 cents.
- Meg Energy Corp. (“sector perform”) to $31 from $27. Average: $27.77.
- NuVista Energy Ltd. (“sector perform”) to $14.50 from $13.50. Average: $15.65.
- Ovintiv Inc. ( “outperform”) to US$69 from US$59. Average: US$56.63.
- Peyto Exploration & Development Corp. ( “outperform”) to $17.50 from $17. Average: $16.33.
- Paramount Resources Ltd. ( “outperform”) to $45 from $40. Average: $38.75.
- PrairieSky Royalty Ltd. ( “sector perform”) to $28 from $26. Average: $26.20.
- Spartan Delta Corp. ( “outperform”) to $7.25 from $6.75. Average: $6.21.
- Suncor Energy Inc. ( “outperform”) to $74 from $57. Average: $52.81.
- Tamarack Valley Energy Ltd. (“outperform”) to $7 from $6.25. Average: $5.83.
- Whitecap Resources Inc. (“outperform”) to $18.50 from $16.50. Average: $14.20.