The Canadian Oil and Gas Equity Correction Has Begun

by: Zvi Bar

Two weeks ago, I wrote an article stating that that the recent activity of energy prices and particularly of Canadian oil and gas companies indicated that there was an increased risk of devaluation in the short-term. I also highlighted the recent performance of seven companies that I had previously identified.

In these last two weeks, those seven Canadian oil and gas companies lost between 4-10% of their value, indicating that this heightened risk alert was accurate.

2 week losses:

  1. Baytex Energy Corp. (NYSE:BTE): 10.42% loss
  2. Cenovus Energy Inc. (NYSE:CVE): 6.54% loss
  3. Enbridge Inc. (NYSE:ENB): 5% loss
  4. Enerplus Corporation (NYSE:ERF): 4.44% loss
  5. Pengrowth Energy Corporation (NYSE:PGH): 7.78% loss
  6. Provident Energy Ltd. (PVX): 11.19% loss
  7. Penn West Petroleum Ltd. (NYSE:PWE): 9.46% loss

2 Week Chart:

(Click to enlarge)

This depreciation follows a poor prior month for the group, which returned between just over 2% and almost -9% within May:

(Click to enlarge)

This recent downward move may continue. These energy natural resource linked equities have begun to act like far riskier equities. Oil normally appreciates for the summer due to demand, but has thus far moved in the other direction. This counter-intuitive move and the general belief that oil is at or near a price where any increase will negatively affect gasoline demand and use may halt the general move upward in price. Invariably, the price will either go start to up again, spike down, or maintain a range. Overall, the long term fundamentals for these Canadian oil and gas companies appear very strong.

Two weeks ago it appeared as though a short-term correction of 10-20% was possible and should be considered a legitimate risk. At this point, these equities are down another 4-10%, indicating that this correction is potentially underway and half over. The end of such a correction appears prone to initiate another move upwards, being led by the price of oil.

Based upon prior ratios, the higher yield Canadian oil and gas equities appear capable of maintaining their current distribution rates so long as oil prices stay above $80 per share, which is well above its current level.

Disclaimer: This article should not be construed as personalized investment advice as it does not take into account your specific situation or objectives and is intended to be press and not a recommendation for or against anything.

Disclosure: I am long PGH.