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What are we looking for?

The “clean” leader of the oil sands.

The screen

Over the weekend, drone strikes hit Saudi Aramco – the largest oil producer and also the world’s most valuable and profitable company – and knocked out more than half of its production capacity, along with potentially destabilizing the world’s biggest oil-producing region.

In the long run, less oil being produced is a good thing for the planet, but in the short run the energy shortage, and the resulting spike in energy prices, is harmful to the global economy and especially the most vulnerable developing economies.

Canada has a lot of export capacity that has been, deliberately, sidelined but could be mobilized to meet a global shortage. As The Globe and Mail reported earlier this week, the Alberta government is in talks with oil producers about allowing them to exceed imposed output limits if they can ship crude by rail. This might mean tailwinds for Canadian energy stocks, many of which rallied on news of the drone strikes.

However, institutional demand for oil sands investment is decreasing owing to environmental concerns, which has the effect of depressing share prices. But some would argue that oil sands producers, despite their dirty reputation, have more stringent regulations and cleaner standards than the Saudis (and other big oil exporters such as Russia and Venezuela). Canada’s government-appointed Expert Panel on Sustainable Finance – with members from the Big Five banks, academia and Canada’s largest pensions – recently recommended, in their final report, support for “Canada’s oil and natural gas industry in building a low-emissions, globally competitive future."

So which of Canada’s oil companies is best positioned for both short-term and long-term sustainable, low-emissions, globally competitive growth?

We will examine the relative sustainability of Canada’s five oil and gas companies that have a market capitalization of at least $50-million and are forecast to produce at least 300,000 barrels of oil a day over the next 12 months. We will compare their CO2-equivalent emissions per $1-million of revenue, their emission reduction target in percentage terms, the year they aim to achieve the target, self-reported environmental fines and internal carbon price. An internal carbon price is a voluntary practice wherein a company applies a cost to a tonne of emissions that can be factored into investment planning and encourages investment in low-carbon solutions.

More about Refinitiv

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What we found

Cenovus Energy Inc. leads in every measure, with the least emission-intensive revenue generation, the most aggressive reduction targets and the highest internal carbon price. Caisse de dépôt et placement du Québec, which has itself targeted a 25 per cent reduction in carbon intensity per dollar invested by 2025, has a $260-million stake in Cenovus, roughly 2 per cent of the outstanding shares of the company.

Cenovus has shown a commitment to environmental innovation, including its co-founding of Evok Innovations – a $100-million investment partnership with Suncor Energy Inc. and the BC Cleantech CEO Alliance. Evok aims to connect the energy industry and global clean technology community to accelerate development of cleantech solutions. Cenovus has also partnered with the Carbon Capture, Utilization and Storage Center at the Massachusetts Institute of Technology.

Investors are advised to do their own research before trading in any of the securities shown below.

CompanySymbolMkt. Cap. ($ Mil.)Prod./Day (000's barrels)CO2e Tonnes/$ Mil. Rev.Emission Reduction Tgt.Emission Reduction Tgt. YearSelf-Reported Environ. Fines ($)Internal Carbon Price/TonneDiv. SmartEstimate (NTM)1Y Rtn.Recent Close ($)
Cenovus Energy Inc.CVE-T$17,11640457845%20250$301.5%24.3%13.93
Encana Corp.ECA-T$9,89630070640%2025n/an/a1.4%-52.0%7.35
Suncor Energy Inc.SU-T$66,87680677830%2030282,000$204.0%-10.2%42.99
Imperial Oil Ltd.IMO-T$27,5723941,01310%2023n/an/a2.5%-4.7%36.31
Canadian Natural ResourcesCNQ-T$45,1289211,709n/a *n/an/an/a4.0%-3.9%37.97

Source: Refinitiv

Note: CNQ has set emissions targets, but not a target for a company-wide emissions reduction like the other four companies.

Hugh Smith, CFA, MBA, is the manager of Refinitiv’s Investment Management business for the Americas, and is a director on the Board of the Responsible Investment Association of Canada.

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