ConocoPhillips put its Alberta properties, which included a stake in the Surmont project, on the auction block in early 2012.
Asset and stock acquisitions by big-name value investors, and a few macro numbers backing up their buys, point to a brighter sentiment in the oil patch after a lengthy slump, if not a full-blown turnaround, TD Securities Inc. contends.
Though it has made up lost ground since its April lows, the Toronto Stock Exchange's energy group remains stuck in its recent range. Still, this month's Alberta oil sands and shale asset buys by some of the oil majors, in deals worth $1.3-billion, and Warren Buffett's new position in Suncor Energy Inc. suggest bargain hunting is underway, TD analyst Michael Dembicki said.
In addition, Canadian energy stocks are cheaper than their U.S. counterparts for the first time in two and a half years, when calculated on the basis of enterprise value to debt-adjusted cash flow, Mr. Dembicki wrote in a research note.
"We believe that these value investors (both equity and asset) may be onto something," Mr. Dembicki said.
It has been a slow year in the energy industry, with big drops in merger and acquisition activity as well as financing, against a backdrop of uncertainty over the ability of the sector to export crude oil as pipeline proposals stall as well as weak natural gas markets.
Some business appears to be picking up, though. Early this month, Imperial Oil Ltd. and Exxon Mobil Corp. teamed up buy an undeveloped oil sands property from ConocoPhillips for $751-million, marking the first major purchase in the oil sands this year. That followed Chevron Corp.'s acquisition of 67,900 net acres of land in the Alberta Duvernay from Alta Energy Luxembourg, a deal that expanded the California-based oil major's position in the huge shale formation.
Last week, Mr. Buffett's Berkshire Hathaway Inc. disclosed it had snapped up 17.8 million shares in Suncor Energy Inc., Canada's largest energy company, a stake currently valued at $628-million. That marked the closely watched conglomerate first disclosure of an investment in the oil sands following a visit that Mr. Buffett made to a plant in northern Alberta with Microsoft Corp. founder Bill Gates in 2008.
So far this year, the S&P/TSX Capped Energy Index is up slightly more than 3 per cent, and is still nearly 7 per cent under its 52-week high set last September. The way Mr. Dembicki sees it, that's a good entry point, and here's why: The U.S. shares now look pricey in comparison, and investors in the United States are likely to go bargain hunting north of the border as a result.
U.S. oil shares, as measured by the Energy Select Sector Index, are up nearly 14 per cent this year.
"We expect that energy investors will start paying closer attention to the Canadian sector." he wrote. "Our preference remains for companies with strong balance sheets and evidence of, or line of sight to, predictable growth," he wrote.
Based on those factors, top picks among his intermediate energy producer coverage list include Bonavista Energy Corp., Cequence Energy Ltd., Paramount Resources Ltd. and Tourmaline Oil Corp.
(Jeffrey Jones is a Globe and Mail Business Reporter.)
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Jeffrey Jones