Canada’s Energy Stocks Tell Obama He Can Buzz Off

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For Canada’s oil sands producers, the last few years haven’t been so rosy. The problem stems from a lack of required infrastructure to get that abundant crude to market. As President Obama has “kicked the can down the road” on TransCanada’s (TRP) Keystone XL pipeline, discontent — as seen in the Western Canadian Select (WCS) oil price and both global Brent and our home-grown Light Sweet Crude (WTI) benchmarks — continues to grow larger.

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That’s a big deal for producers whose pricing is tied to the WCS benchmark. With the Obama Administration continuing avoid making a decision on the fate of Keystone XL, many Canadian energy stocks are now trading for peanuts compared to their American shale counterparts.

Recently, Canada’s energy companies and the government are indicating they won’t stand for this much longer and are making moves to take the American President and his opinions out of the equation. Basically, they’re telling Obama to buzz off.

For investors, that could be the spark necessary to close the gap on WCS crude as well as give a boost to the various oil sands energy stocks.

The Energy Stocks Are Finding Alternative Means

In its latest research paper, the Oil & Gas Journal estimates that Canada had 173 billion barrels of proven oil reserves as of the end of 2013. This amount of crude places Canada in the upper echelon of energy producers. Much of that — like 90%-plus — is held within the sand and clay of the Athabasca region in Alberta. That’s a lot of energy — and economic opportunity — that could potentially be tapped.

If you remember, the Keystone XL pipeline will ultimately link Canada’s vast tar sands in Alberta with refineries along the coast of Texas and Louisiana. However, the border crossing piece has proved problematic as it requires Presidential approval. Various lawsuits, committees and other bureaucratic red-tape have taken hold, preventing TransCanada from finishing this piece of the pipeline.

In response, Canada’s various energy firms have figured-out several workarounds to the border crossing conundrum.

For starters, pipeline firm Enbridge (ENB) has two major projects in the works that will ship oil sands crude — including one that will skirt the U.S. border.

The first is the company’s massive Northern Gateway Pipeline, which will send bitumen from Alberta towards ports in British Columbia. There the crude will be able to be shipped via tanker towards Asia. At the same time, ENB’s Alberta Clipper Pipeline — which, like Keystone, was also waiting for border-crossing approval — will use several interconnections to tie into an existing cross-border pipeline. These interconnections will allow the company to transfer the oil sands crude from the Alberta Clipper to the existing pipeline in order to cross the border. Then the interconnections will move the bitumen back to the Clipper on the other side. It’s perfectly legal and the idea has already been blessed by the State Department.

Even TransCanada isn’t waiting around for the President to sign-off on Keystone.

The firm has already announced plans to build a crude-by-rail terminal to work around the border-crossing. The idea is similar to ENB’s, in which, TransCanada will place the oil onto trains, cross the border and place it back into he Keystone XL’s southern leg. And if that wasn’t enough, TRP is planning to run eastward toward the Atlantic.

TRP’s newly announced Energy East pipeline would move oil sands crude through Canada in an underused natural gas pipeline towards ports in New Brunswick. Here it would either be refined, exported to Europe or carried via Jones Act compliant tankers down to the Gulf. The pipeline would be bigger than the Keystone and carry a third more oil sands crude. More importantly, it doesn’t need any sort of U.S. Presidential approval to be built.

At the end of the day, Canada isn’t mucking around with its vast energy stockpile. For producers of oil sands and WCS benchmarked crude, the recent decisions to find infrastructure workarounds is music to their ears.

Two Oil Sands Energy Stocks To Buy

Aside from both ENB and TRP, several of Canada’s energy stocks will benefit from improved WCS pricing and ability to sell more oil sands crude. Two of the best picks for investors could be Suncor Energy (SU) and Canadian Natural Resources (CNQ).

SU first pioneered the commercial development of Canada’s oil sands back in 1967. Since then it’s become one of the largest landholders in Athabasca and currently produces around 403,100 barrels of oil equivalent per day from the region.

Already, SU has begun shipping crude oil to Europe from the oil sands via crude-by-rail operations to ports in Quebec. However, those operations are already beginning to reach full capacity. Any additional shipping infrastructure would benefit SU’s ability to sell WCS crude at better process. That would boost the profits at its vast upstream, midstream, and downstream empires outside the oil sands even further.

As for stock, SU is dirt cheap at a forward price-to-earnings ratio of just 10 and 3% dividend yield. That makes SU stock not just a great oil sands buy, but a general energy stocks one as well.

Then there is Canadian Natural Resources to consider. CNQ has a broad portfolio of low-risk exploration and development projects that churn out production and profits. It generates billions in revenue from its oil fields in the North Sea. But Canadian Natural Resources has also hitched its future to the oil sands.

Buying into the region when other energy stocks were chasing natural gas in shale, CNQ has managed to build an impressive asset base in Alberta. The firm’s Horizon Oil Sands project is already a monster and is currently pumping out around 115,000 barrels per day of crude oil. However, Canadian Natural estimates that once the project is fully completed, it will be able to churn out roughly 500,000 barrels per day.

And like SU, CNQ shares are pretty cheap as far as energy stocks go. They trade for a forward P/E of 9 as well. Add in a 2.4% dividend and you have a great play for the oils sands growth.

The Bottom Line: Canada’s leading oil sands energy stocks aren’t waiting around for the Obama Administration to approve the Keystone XL. They are finding their own way to get that crude to market. That will ultimately benefit the producers in the region like SU and CNQ.

The author doesn’t owns stock in the companies mentioned.

Aaron Levitt is an investment journalist living in Ohio. With nearly two decades of experience, his work appears in several high-profile publications in both print and on the web. Also likes a good Reuben sandwich. Follow his picks and pans on Twitter at @AaronLevitt.


Article printed from InvestorPlace Media, https://investorplace.com/2014/10/canada-energy-stocks-trp-enb-su-cnq/.

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