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Investors dump Canadian oil stocks As Alberta considers raising royalty rates, some Toronto exchange energy stocks take beating; Imperial relatively unscathed The Associated Press
The possibility that Alberta’s provincial government could demand significantly higher royalties from oil and gas producers has soured some investors’ taste for Canadian energy stocks, at least in the short term.
The Toronto Stock Exchange’s energy sector fell 2.8 percent on Sept. 19 as investors responded to a government-appointed panel’s recommendation that Alberta should get a bigger share of the revenues generated from its oil and gas resources.
Dennis Gartman, editor of The Gartman Letter, said he recognizes the panel’s recommendation isn’t law yet but said it smacks of socialism and “foolishness of the first order.”
“I really did not expect this. I might have expected it from Quebec, but I did not expect it from Alberta,” Gartman said in an interview with BNN, a business-oriented cable network.
“I think it’s a philosophical change that causes me a great deal of concern,” Gartman said.
For now, Gartman said he’ll “stand on the sidelines, watch what happens, hope that the premier of Alberta shows some wisdom and comes out strongly against this and, if he does, then it will be easy for me to go back in. . . . ”
Gartman said that when he’s optimistic about the prospects of crude oil, he usually invests in Suncor Energy, a large Calgary-based integrated producer with a significant presence in the Alberta oil sands.
Suncor’s shares fell 4.45 percent Sept. 19 to $96.53. Other large Calgary-based producers that felt investors’ ardor cool after the royalty proposal included Paramount Energy Trust, down 3.5 percent to $7.47, Canadian Oil Sands Trust, down 4.4 percent to $32.55 and OPTI Canada Inc., which fell 5.7 percent to $17.75.
One of the biggest declines, though, was UTS Energy Corp. The oil sands developer fell nearly 12 percent to $5.46.
However, not all Canadian-based energy stocks were hit as hard and some stocks actually gained ground.
For instance Imperial Oil Ltd., the country’s largest integrated oil and gas company, slipped less than 1 percent to $49.62 while First Calgary Petroleum, which is developing natural gas properties only in Algeria, saw its stock rise 1.3 percent to $4.81.
Stelmach says “won’t be intimidated” Alberta Premier Ed Stelmach emerged from a government caucus meeting Sept. 19 saying that he “won’t be intimidated” when deciding how to handle the report, which urges the province to grab $2 billion more annually from oil and gas companies.
“The report’s significance is huge. It’s huge for Albertans, for the future of this province and really for the country of Canada,” Stelmach said.
“We’re going to review it, calculate it carefully and see what the implications are because this is really setting a policy for the next 20 or 30 years.”
A clear negative, says Zive Desjardins Securities analyst Adam Zive wrote in a research note Sept. 19 that the proposed changes would have the biggest impact on companies with projects that are close to paying out royalties or have already paid out, such as Suncor.
But Zive said the overall impact for the industry would be negative, if the government accepts the proposals.
“If implemented, these recommendations are a clear negative for the Canadian oil and gas sector and particularly the oil sands with increasingly marginal economics as cost pressures continue to increase and labor efficiency continues to decline in the region,” Zive wrote.
Kinsey hopes saner heads will prevail
John Kinsey, a portfolio manager at Caldwell Securities in Toronto, said in an interview that he doesn’t think the Alberta government will do anything drastic.
“Obviously, the first-blush reaction from the market is not very good. But that’s just the first reaction,” Kinsey said.
“Hopefully, once the (Alberta) government looks at this (report), they’ll recognize there’s some good things in it and some bad things in it and try to keep the good things and get rid of the bad things.”
Kinsey said he has no intention of bailing out of the Alberta oil patch entirely.
“As I say, I would like to think that saner heads would prevail and that something will be worked out here,” Kinsey said. “We’ve seen these knee-jerk reactions before and we’re prepared to wait and see how this all plays out.”
—Petroleum News contributed to this report
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