Investors may stay cool on Canada oil stocks-analyst
CALGARY, Alberta (Reuters) - Global investors are likely to remain cool on Canada's oil patch, despite expectations of rapid gains in output, as they worry about economic risks and a squeeze on pipeline capacity that will keep pressure on crude prices, an analyst said.
Canadian energy shares, down 11 percent in the past year, face several months to a year of more weakness due to a combination of factors that also includes depressed natural gas prices, CIBC World Markets analyst Andrew Potter said in an extensive report into North American energy market conditions.
The one thing that could improve the market outlook is a wave of takeovers, however, Potter said. There have been indications of that, with the $15.1 billion takeover bid for Nexen Inc NXY.TO by China's CNOOC Ltd (0883.HK: Quote) and a recently increased C$5.2 billion offer for Progress Energy Resources (PRQ.TO: Quote) by Petronas PETR.UL of Malaysia.
He wrote that much of the macroeconomic uncertainty, including the European debt crisis and a murky Chinese outlook, could already be priced into Canadian stocks.
"However, the general negative backdrop with increasingly limited growth visibility and rising pipeline/differential risk means that global investors are unlikely to flock back to Canadian oil and gas exposure anytime soon -- unless we see the recent flurry of M&A turn into a full blown wave," he said.
The Toronto Stock Exchange energy group .SPTTEN, which includes shares of such big names as Suncor Energy Inc (SU.TO: Quote), Encana Corp (ECA.TO: Quote) and Talisman Energy Inc TLM.TO, was at 259 points on Thursday, down from 291 a year earlier and 367 in early 2011, even as forecasts for oil output remained high.
Production of Canadian unconventional light oil, aided by the booming use of horizontal drilling and hydraulic fracturing techniques, could increase by as much as 10 percent, or 100,000 barrels per day, annually, hitting 1.65 million bpd by the end of the decade, according to the report.
Oil sands production, meanwhile, could climb by 270,000 bpd annually through 2020, unless the macro conditions prompt some big players to scale back plans for megaprojects.
The problem is limited capacity to move it to market, Potter said. He said production could bump up against pipeline capacity as early as 2014, which would further depress the price of Canadian crude versus U.S. and international benchmarks. Continued...