The recent plunge in oil prices may offer investment opportunities in Canada's energy sector for long-term investors such as the Canada Pension Plan Investment Board, the head of the pension fund said.
"We are seeing a period now where there may be increasing opportunity in the Western Canadian basin and Canadian energy companies as the market sort of reprices," Mark Wiseman said in a telephone interview today.
Brent crude extended losses below $80 a barrel, dropping to a four-year low on speculation Saudi Arabia will not reduce output amid a glut of supply.
Wiseman said the resulting decline in oil prices will put pressure on some of the less financially sound energy companies, potentially creating some opportunities for acquisitions.
"Our attraction will be to those best-quality assets, best-quality management teams, and best-quality companies," he said.
Wiseman, chief executive officer of the fund, pointed to Canada Pension's investment in Seven Generations Energy Ltd. as an example. The pension fund is the largest shareholder, holding more than 15 per cent of its common shares, according to data compiled by Bloomberg.
Canada Pension, which was an early investor in Seven Generations, didn't sell shares in the company's initial public offering last month because it sees long-term opportunities in the company. Seven Generations debuted in Toronto on Oct. 30 at C$18 a share and has since climbed to $22.50 today.
"It's a great example of the long-term view we take," Wiseman said. "We made a very conscious decision that we want to watch that value accrete and grow over the long term."
Canada Pension is also a majority owner in Teine Energy Ltd., which had originally planned an initial public offering this fall.
Teine has since pushed off its IPO into 2015. Wiseman declined to comment on the decision, adding the pension fund manager is in no rush to monetize that investment.
"It's a wonderful position to be in," he said.
Canadian producers have been helped somewhat by the weaker Canadian currency because oil and gas is sold in U.S. dollars and their costs are largely in Canadian dollars, he said.
For a long-term, value-based investor like Canada Pension, the Canadian energy space is a bright spot, he said. The current market remains challenging, with targets around the globe fairly valued, Wiseman said.
That has made it difficult to find any obvious buying opportunities, he said.
"This is probably about the most difficult market conditions that I've seen in my professional career as an investor," he said. "We're being extremely prudent."
Canada Pension said today in a statement it returned 3.4 per cent from its investments in the quarter ending Sept. 30.
The fund manager, which handles the retirement savings of 18 million Canadians, reported net assets of C$234.4-billion ($206-billion) at the end of the quarter, up 22 per cent from a year earlier.
The value of its public equities rose 20 per cent to C$77.4-billion while its private equities rose 29 per cent to C$43-billion.
Fixed-income assets rose 22 per cent to C$76-billion, while real assets, including real estate and infrastructure investments, rose 15 per cent to C$38-billion.
Other Investments Among its other investments during the quarter, Canada Pension increased its position in Potash Corp. of Saskatchewan Inc. by acquiring 7.3 million shares in the company, valued at about C$279-million based on yesterday's close, according to filings this week with U.S. regulators. The fund manager previously held just 290,000 shares in the Saskatoon, Saskatchewan-based company.
Canada Pension also disclosed in the filings it held 1.95 million shares in Alibaba Group Holding Ltd. that are currently valued at $230-million based on yesterday's close after the Chinese e-commerce giant's IPO in September.