stats
globeinteractive.com: Making the Business of Life Easier

   Finance globeinvestor   Careers globecareers.workopolis Subscribe to The Globe
The Globe and Mail /globeandmail.com
Home | Business | National | Int'l | Sports | Columnists | The Arts | Tech | Travel | TV | Wheels
space


Search

space
  This site         Tips

  
space
  The Web Google
space
   space



space

  Where to Find It


Breaking News
  Home Page

  Report on Business

  Sports

  Technology

space
Subscribe to The Globe

Shop at our Globe Store


Print Edition
  Front Page

  Report on Business

  National

  International

  Sports

  Arts & Entertainment

  Editorials

  Columnists

   Headline Index

 Other Sections
  Appointments

  Births & Deaths

  Books

  Classifieds

  Comment

  Education

  Environment

  Facts & Arguments

  Focus

  Health

  Obituaries

  Real Estate

  Review

  Science

  Style

  Technology

  Travel

  Wheels

 Leisure
  Cartoon

  Crosswords

  Food & Dining

  Golf

  Horoscopes

  Movies

  Online Personals

  TV Listings/News

 Specials & Series
  All Reports...

space

Services
   Where to Find It
 A quick guide to what's available on the site

 Newspaper
  Advertise

  Corrections

  Customer Service

  Help & Contact Us

  Reprints

  Subscriptions

 Web Site
  Advertise

  E-Mail Newsletters

  Free Headlines

  Globe Store New

  Help & Contact Us

  Make Us Home

  Mobile New

  Press Room

  Privacy Policy

  Terms & Conditions


GiveLife.ca

    

PRINT EDITION
Pressure mounts for oil patch as crude prices fall, pipeline capacity problems rise
space
space
By JEFFREY JONES
  
  

Email this article Print this article
Monday, June 10, 2019 – Page B1

CALGARY -- The "Kenney bump" in Canadian energy stocks was short-lived.

Slumping crude prices have combined with a host of new fears about the industry's inability to expand its capacity to move oil. Anticipation that investors would return to the sector en masse following the election of Premier Jason Kenney's United Conservative Party government in Alberta has not materialized. Now, analysts see little stability for the sector on the horizon.

"You know what it feels like? It feels like Whac-A-Mole," said Jeremy McCrea, an analyst at Raymond James. "You solve one problem and another thing pops up."

Investors are again worried about the many regulatory, political and legal problems that keep buffeting the industry - including the fight in Ottawa over a new federal environmental-assessment policy for major projects, and this week, new concerns about Enbridge's pipeline system in the U.S. Midwest, Mr. McCrea said. Those events and falling crude prices have heaped renewed pressure on Canadian oil and gas shares.

In April, the victory for the UCP, which ran a staunchly pro-industry campaign, pleased many energy investors and initially helped to push up share prices to sixmonth highs. It's been a sharp retreat since then.

The S&P/TSX capped energy index rose slightly on Friday, but is down 18 per cent from its recent high on April 23.

Among big-name producers, Encana Corp.

has fallen 34 per cent in that time, Canadian Natural Resources Ltd. 15 per cent and Suncor Energy Inc. 12 per cent.

West Texas Intermediate, the U.S. benchmark for crude, jumped nearly 3 per cent on Friday to settle at US$54.09 a barrel. But oil is still down 18 per cent from its April high against a backdrop of worry that trade tension between the United States and China will lead to a widespread economic slowdown and crimp demand, just as forecasts for U.S. oil production are on the rise.

The Organization of Petroleum Exporting Countries and other major producers are slated to meet in the coming weeks to determine whether to extend current output quotas or change them over the next half of the year.

"I think there's some kicking of tires in stocks, but realistically, there's no urgency to invest because every new week presents a new news item or challenge or judicial-type decision. It isn't really motivating anybody to take on risk in the space," said Robert Fitzmartyn, analyst at GMP FirstEnergy.

Canada's oil patch has struggled with a combination of insufficient pipeline capacity to export crude and waning investor interest as the industry in other regions - notably the Permian Basin in Texas and Oklahoma - attracted a gusher of capital. At the start of this year, Alberta's previous NDP government responded to transport woes with a contentious move to force production cuts on oil producers to deal with a glut of supply. The curtailments, although reduced, remain in place under Mr. Kenney.

There is some cause for optimism. On June 18, the federal cabinet is expected to approve the much-delayed Trans Mountain pipeline expansion between Alberta and the West Coast, which would triple the oil line's capacity to 890,000 barrels a day. Even so, court challenges by opponents are all but certain. Even if construction is allowed to begin, the earliest the project would be in service would be 2022.

Meanwhile, Enbridge Inc. suffered a setback last week in its already-delayed quest to replace a major Canada-U.S. pipeline known as Line 3 when a Minnesota court ruled its environmental assessment was inadequate. In addition, an existing Enbridge conduit, Line 5, faces the threat of being shut down within two years in a disagreement with Michigan's governor over whether it should be allowed to operate while the company constructs a tunnel under the Straits of Mackinac to house a replacement line.

Natural-gas producers, meanwhile, have also been hit with a combination of tight pipeline capacity and low prices.

Because investors expect that output growth will continue to be constrained, oil and gas producers that analyst Mr. McCrea covers are selling in the market for an average of about four times their cash flow a share. That is paltry compared with historical multiples of about seven times, he said.

The share drops only extend a rough run that began, for some companies, before the oil-price downturn in late 2014, said Martin Pelletier, portfolio manager and co-found of TriVest Wealth Counsel. The situation highlights the difficulties in picking stocks in the oil patch, amid the industry-specific and macroeconomic volatility. "What you got back in last 10 years hasn't been very rewarding, especially considering the level of risk," Mr. Pelletier said. "Especially since we're not seeing any sort of inflation work its way into the economy. In a disinflationary environment you're not going to see a strong outlook for oil."

With reports from Megan Devlin in Toronto


Huh? How did I get here?
Return to Main Heather_Mallick Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

space  Advertisement
space

Need CPR for your RSP? Check your portfolio’s pulse and lower yours by improving the overall health of your investments. Click here.

Advertisement

7-Day Site Search
    

Breaking News



Today's Weather


Inside

Rick Salutin
Merrily marching
off to war
Roy MacGregor
Duct tape might hold
when panic strikes


Editorial
Where Manley is going with his first budget




space

Columnists



For a columnist's most recent stories, click on their name below.

 National


Roy MacGregor arrow
This Country
space
Jeffrey Simpson arrow
The Nation
space
Margaret Wente arrow
Counterpoint
space
Hugh Winsor  arrow
The Power Game
space
 Business


Rob Carrick arrow
Personal Finance
space
Drew Fagan arrow
The Big Picture
space
Mathew Ingram arrow
space
Brent Jang arrow
Business West
space
Brian Milner arrow
Taking Stock
space
Eric Reguly arrow
To The Point
space
Andrew Willis arrow
Streetwise
space
 Sports


Stephen Brunt arrow
The Game
space
Eric Duhatschek arrow
space
Allan Maki arrow
space
William Houston arrow
Truth & Rumours
space
Lorne Rubenstein arrow
Golf
space
 The Arts


John Doyle arrow
Television
space
John MacLachlan Gray arrow
Gray's Anatomy
space
David Macfarlane arrow
Cheap Seats
space
Johanna Schneller arrow
Moviegoer
space
 Comment


Murray Campbell arrow
Ontario Politics
space
Lysiane Gagnon arrow
Inside Quebec
space
Marcus Gee arrow
The World
space
William Johnson arrow
Pit Bill
space
Paul Knox arrow
Worldbeat
space
Heather Mallick arrow
As If
space
Leah McLaren arrow
Generation Why
space
Rex Murphy arrow
Japes of Wrath
space
Rick Salutin arrow
On The Other Hand
space
Paul Sullivan arrow
The West
space
William Thorsell arrow
space





Home | Business | National | Int'l | Sports | Columnists | The Arts | Tech | Travel | TV | Wheels
space

© 2003 Bell Globemedia Interactive Inc. All Rights Reserved.
Help & Contact Us | Back to the top of this page