A liquefied natural gas terminal in British Columbia will “refocus people on Canadian gas,” giving a boost to stocks such Tourmaline Oil Corp. and ARC Resources Ltd., according to the manager of more than $500-million in assets for Bank of Nova Scotia.
A $40-billion Canadian LNG project led by Royal Dutch Shell PLC appears to be speeding up, although a final decision hasn’t been announced. Scotiabank’s Jennifer Stevenson expects the project to go ahead, prompting investors to re-evaluate struggling Canadian gas producers.
“That will make people look at Western Canadian gas economics in a new light, because we have yet another place of egress,” said Ms. Stevenson, a portfolio manager at 1832 Asset Management, a unit of Scotiabank. Ms. Stevenson manages $319-million in energy funds and co-manages another $268-million in resource funds. Ms. Stevenson’s Dynamic Energy Income Fund has returned 6.3 per cent this year and 18 per cent including dividends in the 12 months to June 30, according to Scotiabank. That compares with gains of 4.8 per cent and 12 per cent in the S&P/TSX Composite Energy Index over the same periods. Tourmaline lost 15 per cent in the past year, while ARC Resources lost 17 per cent.
On another front, liquids-rich producers such as Tourmaline and ARC have “amazing netbacks,” or gross profits per barrel, because they provide condensate to heavy-oil producers, which use it to dilute their crude so it can move through pipelines, she said. And Ms. Stevenson is bullish on big oil sands players such as Suncor Energy Inc. and Canadian Natural Resources Ltd., calling them “money-printing machines.”
Oil sands producers benefit from relatively low costs and slow production declines compared with their shale peers, she said. Ms. Stevenson believes investors will start treating these companies more like industrials than commodity producers.
“This is a free-cash-flow generating business with annual dividend increases,” she said. “That dividend is sustainable way down the commodity price curve, and I think that allows a new type of investor to come in and say, ‘Okay, this is more like an industrial business than a commodity play.’ That helps the share price over time.”
Besides the oil sands majors, Ms. Stevenson said international players such as Shell, ConocoPhillips Co. and Chevron Corp. also fit this profile.
Ms. Stevenson is “structurally positive” on oil prices and sees West Texas Intermediate trading around US$70 despite short-term volatility prompted by U.S. President Donald Trump’s threat to release crude from the country’s Strategic Petroleum Reserve. WTI prices traded around US$68 on Wednesday after falling below US$65 in June.
“There’s always going to be volatility on short-term noise, but the underlying fundamentals of supply versus demand are really strong,” she said.