Canada is the biggest foreign supplier of oil and gas to the United States, and one of its closest allies. In 2011, several Canadian petroleum companies appreciated in the double digits, while others depreciated to a comparable level. Most also provided above-average dividends, compared to the broader market.
Canadian-based companies pay their dividends in Canadian currency, which is natural resource-backed. During the second half of 2011, the Canadian dollar weakened versus the U.S. dollar due to price reductions for various commodities and dollar strength due to European sovereign concerns.
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. (BTE), Cenovus Energy Inc. (CVE), Enbridge Inc. (ENB), Enerplus Corporation (ERF), Pengrowth Energy, Corporation (PGH), Provident Energy Ltd. (PVX) and Penn West Petroleum Ltd. (PWE). I have included their 1-week, 2012-to-date and 3-month equity performance rates, as well as their current yields.
2011 was an extremely volatile year for oil prices, starting with appreciating oil on account of instability within the Arab world, much of which is still not completely resolved. Later, oil prices declined during the late Spring and Summer, on demand concerns, 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 several quarters. Current relative oil strength could bode well for these companies, as well as for the Canadian currency.
Further, despite widespread concerns over global economic conditions, and the potential for lower petroleum demand in the future, expectations for further quantitative easing may once again push investors into real assets and high-yield options.
So far in 2012, the best-performing listed equity is Provident Energy, which largely moved up due to the company's January 16, 2012, announcement that it agreed to be acquired by Pembina Pipeline Corporation (PBNPF.PK), another Canadian oil & gas company. The acquisition has not yet completed. Provident is up 22.69 percent so far in 2012 and 7.41 percent within the last five days.
Most Canadian oil and gas companies were Royalty Trusts ("CanRoys") before changes in Canadian law eliminated 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. After Canada eliminated these trusts, most of them converted into corporations. Some may need to further restructure themselves or their dividends in the coming quarters.
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.
