Desjardins Desjardins Securities analyst Chris MacCulloch introduced his 2026 estimates for Canadian energy companies on Wednesday after adjusting his commodity price deck to reflect the “increased likelihood” of U.S. tariffs from the Trump administration.
“Specifically, we have widened our 2025 differential assumptions to reflect the impact of a 10-per-cent tariff, which we expect to be partially absorbed by producers, with offsetting support from a weakening loonie,” he said. “Unfortunately, the most damaging aspect of a potential trade war on a US$150b cross-border trade relationship for energy products will likely be on investor sentiment for Canadian oil & gas equities to the extent that it drives capital flight from a sector which only recently began to recover from previous policy errors.
“Looking beyond trade wars, which we expect will prove temporary, we continue to view the sector as attractively valued, both in absolute terms and relative to US peers, with strong balance sheets providing additional protection from commodity price volatility. Our top picks remain CVE and ARX. We also highlight SU, IMO, TOU, VET, TPZ and FRU as providing attractive diversification in the event of a trade war.”
While the magnitude of potential tariffs remains unclear, the analyst thinks it’s “now prudent to begin factoring them into our estimates, particularly to the extent that the federal government could apply retaliatory export taxes on cross-border energy flows if the sector receives a carve-out.”
“Ultimately, we expect a potential trade war to prove relatively short-lived given the highly integrated nature of the North American energy sector, which is why we have factored in only a 10-per-cent tariff for roughly six months,” he aded. That said, we expect producers to absorb at least 50 per cent of the incremental cost of tariffs with respect to Canadian oil exports to the US and natural gas exports to eastern markets, which contributed to our widening of 2025 WCS (to US$17.50/bbl from US $12.50/bbl), Edmonton Par (to US$7.50/bbl from US$3.00/bbl), Edmonton condensate (to US$5.00/bbl from US$1.00/bbl) and AECO (to US$1.75/mcf from US$1.20/mcf) differential assumptions. However, the financial impact of tariffs is partially offset by a significant weakening of our 2025 Canadian dollar forecast (to US$0.70/C$1 from US$0.74/C$1).”
With his changes, Mr. MacCulloch made one rating revision, upgraded MEG Energy Corp. to “buy” from “hold” based on an improved return to his target, which slid to $29 from $30.50. The average is $31.93.
“We are upgrading MEG to Buy–Average Risk (from Hold–Average Risk), reflecting a more attractive return profile vs our revised $29.00 target (was C$30.50) following an extended period of relative sector underperformance,” he said. “While acknowledging that the company is fully exposed to potential U.S. tariffs stemming from its heavy oil–weighted production base and reliance on Canadian condensate supplies, which could be subject to retaliatory tariffs, we believe the market has now priced in considerable downside risk and is unduly discounting the sustainability of the business model and organic growth opportunities. After achieving its US$600-milion net debt target last fall, MEG is well-protected from commodity price volatility, with a 2026E strip D/CF of 0.5 times and an all-in corporate breakeven of US$53/bbl. Given the strengthened balance sheet, MEG is now returning 100 per cent of FCF to shareholders through the base dividend (1.7-per-cent yield) and share buybacks, the latter of which are expected to retire 10 per cent of outstanding shares in both 2025 and 2026 at current strip prices. Meanwhile, the company is also pursuing organic growth through disciplined capital investment whereby it plans to gradually ramp Christina Lake productive capacity to ~135 mbbl/d by 2028 (from 110 mbbl/d currently). Finally, while it is perhaps less immediate, we continue to view MEG as an attractive eventual takeover target for a larger producer seeking additional scale in the Canadian oil sands through a top-quartile, unencumbered asset with a long reserve life at Christina Lake.”
The analyst made these target adjustments for large-cap stocks in his coverage universe:
- Arc Resources Ltd. ( “buy”) to $34 from $35. Average: $32.78.
- Canadian Natural Resources Ltd. ( “buy”) to $53.50 from $57.50. Average: $55.75.
- Cenovus Energy Inc. (“buy”) to $28 from $30.50. Average: $30.
- Imperial Oil Ltd. (“hold”) to $99 from $98. Average: $101.51.
- Suncor Energy Inc. (“buy”) to $68.50 from $66. Average: $61.85.
- Tourmaline Oil Corp. ( “buy”) to $80 from $77. Average: $79.11.