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Energy Sector Update for 09/10/2015: SU.TO, CVE.TO, ARX.TO, CNQ.TO

Credit Suisse has revised its estimates and targets for the Canadian oil and gas sector by ~10% for 2015, ~20% for 2016, and ~15% for 2017, based on the brokerage's updated crude outlook and incorporating potential for further cost reduction. The lower CFPS estimates position Credit Suisse ~5% below consensus for both 2015 and 2016, respectively. With lower sector cash flows, near and longer term, Credit Suisse has cut targets by ~15%, with the greatest reductions among oilier, more leveraged names.

Credit Suisse remains defensive in the sector positioning, favouring companies with room to re-lever balance sheets in the near-term while growth is preserved for the long-term. Preferred names include Suncor (SU.TO), Canadian Natural Resources (CNQ.TO), Cenovus (CVE.TO), Arc Resources (ARX.TO). On a 12-month view, as oil prices are expected to rise into the ~US$60 WTI range by H216, Credit Suisse see ~20% total return upside for the group on average, based on revised target prices and expected dividends.

* CS Macro View: Credit Suisse has updated its macro commodities view -new forecasted oil prices remain low through mid next year, which should keep US upstream activity contained (depressed) through 2016. Further out, through 2017, prices are kept below $65/b WTI, the level from which oil production growth from America's best shale basins would again accelerate. Only in the 2018-19 time-frame are oil prices forecast to rise above $65/b WTI and $70/b Brent. Natural gas and NGL price forecasts are unchanged with the latest view. For a more robust discussion of the Credit Suisse commodities update, please see Markets to Force Production "Discipline", dated September 8, 2015.

* Canadian Political Backdrop: Lack of clarity around Alberta fiscal and regulatory policy under the new NDP government continues to compound the uncertainty associated with the broader macro environment. While assurance has been provided that current royalty rates will remain in effect until YE16, a review has been initiated with proposals expected by YE15. The Federal election in October could also influence a range of items from corporate taxation to GHG policy, in addition to USD/CAD FX rates.

* Canadian Crude Supply: Against a lower-for-longer oil price outlook and uncertain Canadian political backdrop, there are greater risks for Canadian Crude Supply - see the full report for more details.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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