By Robert Tuttle and Michael Bellusci sure 12/14/2020
CALGARY (Bloomberg) – After years in the shadow of the U.S. shale boom, Canada’s oil sands are emerging from the historic market crash of 2020 with a host of bullish outlooks from Wall Street analysts.
Morgan Stanley and Goldman Sachs Group Inc. are the latest companies to highlight the industry’s ability to generate healthy cash flow next year as a reason to buy stocks such as Suncor Energy Inc., Canadian Natural Resources Ltd. and MEG Energy Corp. reports from BofA Securities and BMO Capital Markets.
“With improved cost structures and an increased propensity to exercise capital discipline, Canadian producers are emerging from the downturn stronger, with greater capacity to generate free cash flow,” analysts said Friday. Morgan Stanley Benny Wong and Adam J Gray.
Positive winds that are improving the outlook for beleaguered heavy crude producers in northern Alberta include weaker competition from Mexico and the start of construction of three pipelines, after years of insufficient shipping capacity.
The steady production of their mines means that oil sands producers are able to sustain their income for decades without too much investment, while the short lifespan of shale wells forces American explorers to constantly burn oil. money just to keep production going.
The eight largest oil sands producers by market value posted combined free cash flow of $ 1.4 billion for the third quarter, compared to $ 163.7 million of the top eight exploration and production companies US, according to data compiled by Bloomberg.
Exports of Maya heavy crude oil, Mexico’s flagship, are expected to decline by 70% over the next three years, helping to reduce the discount of Western Canadian Select oil from New York-traded futures to 5-7 dollars a barrel next year, BMO Capital Markets said in October. The price differential is currently around $ 12 a barrel.
Demand for WCS also increased after OPEC countries reduced production of their heavier, more sulfur-like grades similar to those found in the tar sands. Canadian oil will continue to be “well supported” in 2021, according to Goldman.
Certainly, oil sands companies also face potential headwinds. A growing number of banks and investors have shied away from the industry due to concerns about high carbon emissions. Pipelines under construction still face potential court delays, as well as political opposition.
Adam Waterous, president and CEO of Calgary-based private equity firm WEF GP, is among investors who expect oil sands to be more profitable than shale. He estimates that US crude production will fall by about 2.5 million barrels a day next year as oil prices are still too low to generate attractive returns.
WEF controls two Canadian oil producers, including Cona Resources Ltd., which bought Pengrowth Energy Corp. in January for about C $ 790 million ($ 620 million) including debt, and is currently involved in a takeover bid. hostile control of Osum Oil Sands Corp.
“The best days of the US oil industry are definitely behind us,” he said. “We are very optimistic about the Canadian tar sands where others are not.