Canadian Energy Stocks Pressured As Oil Dips Below $80

by: Zvi Bar

Canada is the largest foreign supplier of energy to the United States. Canadian-based companies pay their dividends in Canadian currency, which has natural resource backing. Over the last two years, Canadian currency has been strong against the U.S. dollar, but it has weakened over the last few months. During this term, oil prices have weakened to an even greater extent.

Foreign investments in nations whose currencies are backed by commodities have suffered leveraged depreciation, as individuals exited commodities and equities, while fleeing into U.S. dollars. Now that oil has breached the $80 a barrel level, which was broadly considered a key resistance level, fears of increased depreciation have helped fuel frenzied selling of foreign oil and gas investments. As goes the price of oil, so shall go these companies. Nonetheless, it appears that many have depreciated to a level far greater than has oil, so far at least.

The following is a list of seven Canadian oil and gas equities that trade within the United States, listed in alphabetical order. Four of these companies pay above-average dividends monthly. I have also included their 1-week (5-day), 1-month and 2011-to-date performances.

Baytex Energy Corp. (NYSE:BTE)

  • Yield: 5.4%
  • 1-week: -4.62%
  • 1-month: -18.33%
  • 2011-to-date: -15.35%

Cenovus Energy Inc. (NYSE:CVE)

  • Yield: 2.6%
  • 1-week: -2.93%
  • 1-month: -15.42%
  • 2011-to-date: -11.42%

Enbridge Inc. (NYSE:ENB)

  • Yield: 3.2%
  • 1-week: 0.19%
  • 1-month: -5.90%
  • 2011-to-date: 9.67%

Enerplus Corporation (NYSE:ERF)

  • Yield: 8.9%
  • 1-week: -5.98%
  • 1-month: -18.78%
  • 2011-to-date: -25.57%

Pengrowth Energy Corporation (NYSE:PGH)

  • Yield: 8.7%
  • 1-week: -7.87%
  • 1-month: -22.35%
  • 2011-to-date: -33.59%

Provident Energy Ltd. (PVX)

  • Yield: 6.6%
  • 1-week: -3.64%
  • 1-month: -8.58%
  • 2011-to-date: -3.64%

Penn West Petroleum Ltd. (NYSE:PWE)

  • Yield: 7.2%
  • 1-week: -13.86%
  • 1-month: -23.67%
  • 2011-to-date: -43.14%

Over the last month, these Canadian oil and gas companies lost between 5 and 24 percent of their market values. The 2011-to-date chart, below, shows that all of these companies have been under pressure over the last few months:

Click to enlarge

The chart indicates that following the severe market fall in August, these Canadian oil and gas equities initially rebounded but subsequently returned to their 2011 lows. Now that $80 was breached, several have fallen to new 52-week lows. Within 2011, shares of only one of the seven above-listed Canadian oil and gas equities are positive: ENB, which is actually up almost 10 percent.

Many of these Canadian oil and gas companies were formerly Royalty Trusts ("CanRoys.") These trusts were similar in design to U.S. MLPs, in that they avoided corporate taxes by passing most of their income to their shareholders. Canada has eliminated this type of trust, and most of them have since converted into corporations. Some may end up converting into MLPs, or become acquired by MLPs, though there has actually been very limited mingling between these Canadian companies and the U.S. MLPs so far.

Most of these companies have not adjusted their dividends since oil was below or around $80. Most did not raise their dividends since, and it appears unlikely that they will lower their dividends so long as oil can continue to trade around $80, and provided their production is not hindered. As oil is now below $80, the high-yield Canadian oil and gas equities look especially susceptible to potential payout reductions. As several of these companies pay on a monthly basis, news of any such cuts could be forthcoming within the next few weeks.

Some believe further money printing will occur within the United States and Europe, helping to support both commodity prices and demand for petroleum. Additionally, potential further instability within oil producing nations could cramp supply, while global oil demand continues to grow, even if at a reduced rate of growth. Any such monetary actions would likely help buoy oil at the $80 range, though nothing is a certainty.

Disclosure: I am long PGH.

Disclaimer: This article is intended to be informative and should not be construed as personalized advice, as it does not take into account your specific situation or objectives.