While RBC Dominion Securities analyst Greg Pardy thought he set-up for Canada’s oil weighted producers in 2024 was “one of the best we had seen in more than a decade,” he warns 2025 is “trickier, in large part given policy uncertainty, particularly in the U.S..
“The good news is that western Canada remains long export oil pipe given the 590,000 bbl/d [barrels per day] Trans Mountain Pipeline Expansion (TMX) moving into place last May,” he added. “Balance sheets are strong and capital discipline is holding the line. And of course, many of the oil majors in Canada are distributing 100 per cent of their free cash flow. Potential U.S. import tariffs remain an open question in our view and would prove disruptive to both sides of the border.
“We estimate that Canada’s oil sands weighted majors — Canadian Natural Resources, Suncor Energy, Cenovus Energy, and Imperial Oil — generated free funds flow (before dividends and working capital movements) of $5.2 billion in the fourth quarter (vs. $6.6 billion in the third quarter) and repurchased about $3.1 billion of their common shares, down modestly from about $3.4 billion in the third quarter.”
Ahead of the start of fourth-quarter 2024 earnings season, led by Imperial Oil Ltd. on Jan. 31, Mr. Pardy said his funds from operations per share estimates for the Canadian majors are “somewhat mixed” versus the Street’s expectations, but he thinks they may move more into line as formal corporate surveys are released.
“Suncor Energy remains our favorite integrated oil in Canada, with Canadian Natural Resources our favorite producer (Global Energy Best Ideas list). MEG Energy, Cenovus Energy, Baytex Energy, and Obsidian Energy round out our Outperform roster,” he said.
In a report released Tuesday, Mr. Pardy updated his company-specific forecasts to reflect fourth-quarter commodity prices, his own price forecast, disclosed share buybacks and released 2025 budgets. That led to a series of target price adjustments to stocks in coverage universe.
His changes are:
- Baytex Energy Corp. ( “outperform”) to $5 from $5.50. The average on the Street is $5.79, according to LSEG data.
- Canadian Natural Resources Ltd. (“outperform”) to $62 from $63. Average: $56.08.
- Cenovus Energy Inc. ( “outperform”) to $26 from $28. Average: $30.86.
- Gran Tierra Energy Inc. ( “sector perform”) to $9 from $9.50. Average: $13.75.
- MEG Energy Corp. ( “outperform”) to $31 from $33. Average: $32.13.
- Obsidian Energy Ltd. (“outperform”) to $12 from $13. Average: $14.
- Ovintiv Inc. ( “sector perform”) to US$53 from US$55. Average: US$58.86.
- Strathcona Resources Ltd. ( “sector perform”) to $35 from $36. Average: $34.88.
- Suncor Energy Inc. (“outperform”) to $65 from $66. Average: $61.31.