Canada is the largest foreign supplier of energy to the United States. 2011 was a year of considerably diverging equity performance for Canadian oil and gas companies traded within the United States. Several Canadian petroleum companies appreciated in the double digits, some while also providing above-average dividends. Others depreciated by a comparable level.
Canadian-based companies pay their dividends in Canadian currency, which is natural resource-backed. Over the last two quarters, the Canadian dollar weakened versus the U.S. dollar, as various commodities reduced in price. Previously, the Canadian dollar has been strong against the dollar since the 2008 meltdown, as have its natural resources such as petroleum, metals and many other basic materials.
Below is a recent performance table for seven Canadian oil and gas equities that trade within the United States (listed in alphabetical order): Baytex Energy Corp. (NYSE:BTE), Cenovus Energy Inc. (NYSE:CVE), Enbridge Inc. (NYSE:ENB), Enerplus Corporation (NYSE:ERF), Pengrowth Energy, Corporation (NYSE:PGH), Provident Energy Ltd. (PVX) and Penn West Petroleum Ltd. (NYSE:PWE). I have included their 2012-to-date, 3-month and 6-month performance rates, as well as their current yields.
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2011 was an extremely volatile year for oil prices. 2011 started with appreciating oil prices on account of instability within the Arab world, much of which is still not completely resolved. Later, oil spiked downward during the late Spring and Summer, only to move back up again during the fourth quarter of 2011.
Many Canadian oil & gas equities have followed oil's price fluctuations over the last volatile year for the commodity. Currently, oil is moving back up, which could bode well for these companies, as well as for the Canadian currency. Moreover, despite growing concerns over a global economic cooling, and the potential for lower petroleum demand, continued expectations for further quantitative easing efforts are once again pushing investors into both real assets. Further, Ben Bernanke's recent extension of the Fed's low rate policy though 2014 may also push investors to seek income from alternative sources.
So far in 2012, the best performing listed equity is Provident Energy, which is up over 14.24 percent. This significant jump is based upon the company's announcement on January 16, 2012, that it agreed to be acquired by Pembina Pipeline Corporation (OTC:PBNPF), another Canadian oil & gas company. The acquisition has not yet completed. Two other listed equities, CVE and PWE, are up over nine percent so far in 2012.
Conversely, the worst performing listed equity thus far in 2012 is Enerplus Corporation, which is now down 6.51 percent. Enerplus' underperformance is based upon the company's January 17, 2012, announcement that it will issue a secondary stock offering of 12.79 million common shares at a price of $23.45 per share.
Most 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 shareholders. Canada eliminated these trusts and most of them converted into corporations. It is unclear whether these businesses will again need to further restructure themselves or their yields, but Penn West's dividend frequency change was likely influenced by this corporate change.
Most Canadian oil & gas companies have not adjusted their dividends since West Texas Intermediate oil was at or near around $80 per barrel. It is likely no coincidence that so many of these companies reached their 2011 lows at the same time that WTI oil again breached $80, and that several have subsequently closely followed oil back upward. The close correlation is likely to continue, and any further oil price strength could bode well for them and their dividends in the coming months.
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.