November Performance Review For 7 Canadian Oil And Gas Equities

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, and the Canadian dollar was stronger than the U.S. dollar for the first half of 2011, but it has weakened over the last few months, as various commodities became reduced in price. Additionally, European and Asian concerns have led investors to leave various currency investments and flee to the perceived safety of U.S. dollars.

Canadian oil companies usually follow the price of oil, and many had terribly volatile third quarters in 2011, as WTI oil fell from above $100 to below $80. Like the commodity, many Canadian oil & gas businesses fell a considerable amount in September, but subsequently rebounded in October.

The following is a list of Canadian oil and gas equities that trade within the United States, listed in alphabetical order, along with their present yields. I have also included their 1-week (5-day), 1-month, 6-month and 1-year performance rates.

Baytex Energy Corp. (NYSE:BTE)

Yield: 4.8%

1-week: 0.69%

1-month: -3.56%

6-month: 11.18%

1-year: 24.42%

Cenovus Energy Inc. (NYSE:CVE)

Yield: 2.5%

1-week: 6.09%

1-month: -2.37%

6-month: -9.98%

1-year: 15.69%

Enbridge Inc. (NYSE:ENB)

Yield: 2.8%

1-week: 0.09%

1-month: 1.61%

6-month: 4.84%

1-year: 26.14%

Enerplus Corporation (NYSE:ERF)

Yield: 8.4%

1-week: 1.00%

1-month: -6.03%

6-month: -19.23%

1-year: -5.45%

Pengrowth Energy Corporation (PGH)

Yield: 8.2%

1-week: 1.98%

1-month: -1.62%

6-month: -22.05%

1-year: -19.17%

Provident Energy Ltd. (PVX)

Yield: 5.7%

1-week: 1.94%

1-month: 4.41%

6-month: 2.83%

1-year: 29.23%

Penn West Petroleum Ltd. (PWE)

Yield: 6.1%

1-week: 3.29%

1-month: 1.67%

6-month: -29.71%

1-year: -16.53%

During the month of November, most of these companies are down, but still well above their lows at the end of September and start of October. Nonetheless, since Thanksgiving these companies have begun to move upwards as a group. See the 1- month performance comparison chart, below:

The group also began October with a similar upwards move, but, like oil, most of these equities were range-bound between mid-October and mid-November. Most of these companies did not adjust their dividends during the second and third quarters of 2011. It is likely no coincidence that so many of these companies reached their 2011 recent lows at the same time WTI oil breached $80, at about the same price level at which several of them raised their dividends.

Several of these companies, as well as the Canadian dollar, may have room to continue appreciating if WTI prices stabilize around or above $100. Moreover, continued monetary easing could bode well for natural resource and basic material prices, especially if such easing endeavors support demand.

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 their shareholders. Canada has eliminated these trusts, and most of them have since converted into corporations. It is unclear whether these businesses will again need to restructure themselves, or find a change preferable based upon future tax laws.

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.

Disclosure: I am long PGH.