Politics overshadow Canadian energy performance

Mon Apr 15, 2013 6:05pm EDT
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By Jeffrey Jones

CALGARY, Alberta (Reuters) - Pipeline politics overshadowed performance in the Canadian energy industry through the first three months of this year, as prices for the country's heavy crude oil slumped, pointing to a string of corporate results that will be mediocre at best.

As companies roll out first-quarter numbers in the coming weeks, however, sentiment among producers over the commodity prices has turned more bullish, with both bitumen and natural gas climbing to several-month highs.

However, the recent rise from the doldrums is not reflected in shares of Canada's largest oil and gas producers as political concerns resulting from uncertainty over Washington's approval of the Keystone XL pipeline proposal to Texas refineries has offset the price fundamentals, making investors wary.

"There's a disconnect between Canadian pricing and these companies' (share prices)," said Martin Pelletier, managing director and portfolio manager at TriVest Wealth Counsel.

Some of the energy names that had been in demand for their quality assets and strong prospects are currently out of favor, Pelletier said, using MEG Energy Corp (MEG.TO: Quote), the oil sands producer, as an example. MEG sank 10.5 percent to C$28.29 in a broad resources sell-off on Monday.

The contentious $5.3 billion Keystone XL project is seen as a linchpin to higher long-term returns for the industry, now facing pipeline bottlenecks. The proposal is being met by staunch opposition from environmental groups.

"The oil and gas sector has been languishing in recent quarters and, from a global context, Canada has been amongst the most out of favor due to the perception of higher cost and higher risk (mainly due to concerns over Keystone XL approval)," CIBC World markets said in recent report.

The Toronto Stock Exchange's oil and gas group has fallen nearly 5 percent since the start of the year, compared with a 2.8 percent decline in the broad TSX composite index. On Monday, the energy group skidded 4 percent.   Continued...